Tax with Max: Determining residency for tax purposes

Considering an extended stay overseas, changes to the Centrelink income test, taking a lump sum super payment and more.

Summary: Someone who has been living in Australia for decades, owns a family home here, is not a citizen, and is currently living overseas, may wonder if they remain an Australian resident for tax purposes. Their residency is relevant when considering the principal residence capital gains tax exemption.

Key take-out: Someone who lives overseas is considered an Australian resident for tax purposes if they intend to return to Australia and not live permanently overseas. This is not necessarily affected by whether they are an Australian citizen.

Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.

Working out residency for tax purposes

I am 75 and an Austrian citizen but have been residing in Australia since 1978. In 2007 my husband died and I have no family here so I spend most of the time in Austria with my children. My current visa expires early 2016. My family home here has been rented out for the last two years and the tenants want to extend the lease which would suit me as I have considerable repairs to finance.

However I am worried that if I am not granted another visa in March 2016 that I become non-resident and that would trigger capital gains tax even if the property has been rented out only for three years at that time. If I sell the home prior to the expiry of the visa, are the proceeds tax-free even if the house has been rented out by that time for approximately three years?

If I keep the property as an income base when living permanently in Austria should I get a valuation of the property at the time when I become a non-resident for tax purposes in case of a sale later on? If a valuation is suggested who would qualify to do the valuation so it cannot be disputed?

Answer: Whether a person is a resident for taxation purposes is not necessarily affected by whether they are an Australian citizen. The main determinant of whether a person is an Australian resident for taxation purposes is where their home is.

This means as long as it is someone’s intention to return to Australia, and not live permanently overseas, and retain their home for them to shift back into when returning to Australia, they should still be classed as an Australian resident for tax purposes.

The principal residence capital gains tax exemption applies to a property for up to six years when it has been rented. If someone is still classed as a resident for taxation purposes, but absent for longer than six years, they will need to get a valuation of your property at the end of the six years. Any suitably qualified or experienced person will be able to do the valuation.

If your Australian visa is not renewed in March 2016, which means you cannot return and take up residence in Australia, it will be hard for you to be regarded as a resident for taxation purposes. The rules relating to residency and capital gains tax are extremely complicated and you should seek professional advice before taking any action.

Changes to the Centrelink income test

I may have misunderstood one of your recent answers about withdrawing a lump sum of $150,000 after December 31, 2014, concerning how it would result in the end of the account-based pension.

I withdraw a regular monthly pension that is slightly more than the amount that I am required by legislation to withdraw for the full year. In my case this is $24,000 over the 12 month period. I don't have any amount in an accumulation account. My $450,000 is all in the pension account.

Does this mean that if I draw an additional amount as a lump sum of, say $25,000 or $50,000, after 31 December 2014, this would result in the end of my account-based pension account and the need to open a fresh account-based pension account?

I receive a part age pension from Centrelink and I realise that the lump sum withdrawn would be treated as income and affect my eligibility for the age pension for that year. But my prime consideration is to retain the existing account-based pension so as to retain the grandfathering provision.

Answer: I have unfortunately caused more confusion than I intended to when answering questions about the effect of the Centrelink income test changes on the age pension and the Commonwealth Seniors Health Card.

With regard to how an account-based pension is treated under the old income test before the changes that came into effect from January 1, 2015, you are correct. One of the main points I was trying to get across, when it comes to withdrawing money from an account-based pension, is that lump sum pension payments can only be taken.

The old practice of anyone receiving an age pension commuting their account-based pension, combining an accumulation account with the now commuted account-based pension account, taking a lump sum, and then commencing a new pension, can no longer be used as this would automatically mean the new income rules will apply.

A couple that currently have some of their account-based pension counted under the income test, after allowing a deduction for the purchase price under the old income rules, could lose their entitlement to the age pension altogether if they take a lump sum pension payment.

This would occur if the lump sum pension payment resulted in the income counted by Centrelink exceeding $73,455 in the year they took the payment. What I am unsure of, and will try and find out from Centrelink, is whether losing the age pension in these circumstances means a new age pension commences that would be subject to the new income rules.

Taking a lump sum payment

My understanding is that a lump sum account-based pension payment of $150,000 would be exempt income for CSHC purposes under the grandfathering provisions, is that correct?

Answer: That is correct. Unlike the income test for the age pension, where the net account-based pension received is counted, under the old income test for the CSHC none of an age pension is counted. This means if a person or a couple are not eligible for the age pension, and are only holders of the CSHC, they should never commute their account-based pension but take large extra pension payments when required.

Changes to an SMSF’s product

I took your advice and withdrew sufficient funds from my SMSF before December 31 to buy a new car. One question that puzzles me is: What constitutes a change in an SMSF's product? I have a five-year term deposit maturing in February and I’m not interested in rolling this over for 3.5% interest. If I cash it in and, say, use the funds to buy some high-yielding shares, will I fall under the new deeming rules?

Answer: Investment changes made by the trustees of superannuation funds, whether they are public offer funds, industry funds, or SMSFs, have no effect on members with regard to the status of their superannuation account. This means cashing in the term deposit when it matures, and investing in a high yielding investment, has no effect on an account-based pension.

Overseas travel for CHSC holders

We now have to make multiple trips to Singapore to assist with a “special needs” grandchild.

Each visit is less than 19 consecutive weeks but over a 12-month period we may exceed the 19 weeks in aggregate. Therefore if you are overseas for, say, eight weeks, then return for three months, then go away again, does the 19-week period start again?

Answer: It is my understanding that the period of time that the holder of a CSHC is absent from Australia is not the aggregate amount during a year. This means if someone is traveling to Singapore on a regular basis, but each time they are not staying there for more than 19 weeks, there should be no effect on their eligibility for the CSHC.


Max Newnham is a partner with TaxBiz Australia, a chartered accounting firm specialising in small businesses and SMSFs. Also go to www.smsfsurvivalcentre.com.au.

Note: We make every attempt to provide answers to readers’ questions, however, answers are of a general nature only. Subscribers should seek independent professional advice for more in-depth information that is specific to their situation.

Do you have a question for Max? Send an email to askmax@eurekareport.com.au

Related Articles