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Edited version of private ruling
Authorisation Number: 1011641878330
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Ruling
Subject: Capital gains tax
Question and answers:
Are the future instalments that you will receive from the disposal of your overseas residence assessable in Australia?
No.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You and your spouse lived overseas and were not residents of Australia for tax purposes.
You and your spouse decided to move to Australia permanently.
You and your spouse had difficulty selling your overseas home.
In order to sell your home quickly, you negotiated an agreement with a friend whereby your friend would purchase the property for an agreed amount.
Conditions of the agreement were such that you would receive a deposit, with the remainder of the principle amount to be paid in instalments for a fixed period.
At the time that the contract was signed you and your spouse were not residents of Australia for tax purposes.
You and your spouse moved to Australia after the contract for the sale of the property was signed.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-10(5).
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-10(3).
Income Tax Assessment Act 1997 Section 116-20.
Income Tax Assessment Act 1997 Section 103-10.
Reasons for decision
Capital Gains Tax (CGT)
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can make a capital gain or loss if and only if a CGT event occurs.
The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset to someone else, for example, if you sell a property. Land or dwellings are CGT assets.
Subsection 104-10(3) of the ITAA 1997 describes when a CGT event A1 occurs. The time of the event is either when the taxpayer enters into a contract for the 'disposal', or if there is no contract when the change of ownership occurs.
For most CGT events, the capital gain is the difference between your capital proceeds and the cost base of your CGT asset for example, if you sell an asset for more than you paid for it, the difference is your capital gain.
According to section 116-20 of the ITAA 1997, the capital proceeds from a CGT event are the total of:
· the amount of money you have received, or are entitled to receive, in respect of the event happening, and
· the market value of any other property you have received, or are entitled to receive, in respect of the event happening (worked out as at the time of the event).
Section 103-10 of the ITAA 1997 states that 'the amount you have received or are entitled to receive' includes money that is payable by instalments.
In your case, CGT event A1 occurred when you entered into the contract for the sale of your overseas home. Therefore, this is the date when the disposal of your residence has occurred for the purposes of Australian CGT.
Residency and Capital Gains Tax
Under subsection 6-10(5) of the ITAA 1997, if you are a foreign resident for tax purposes, your assessable income includes capital gains and capital losses from Australian sources only.
In your case, when the contract for the sale of your property located overseas was signed you were a foreign resident for taxation purposes and therefore any future proceeds that you will receive will not be assessable in Australia under section 103-10 and subsection 6-10(5) of the ITAA 1997.
Conclusion
Accordingly, as you were not a resident of Australia when you disposed of your overseas residence any proceeds including future instalments will not be assessable in Australia.
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