Edited version of private ruling

Authorisation Number: 1011724924579

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fac sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject : Capital gains tax - foreign investment and interest

Question and Answer

1. Are the foreign investments and interest you held subject to Capital Gains Tax?

Yes

2. Are you entitled to claim a deduction for overseas travel to redeem your investment funds?

No.

This ruling applies for the following period

1 July 2010 to 30 June 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

In xx your permanent resident visa was granted.

In xx you first entered into Australia.

You then returned to country B.

In xx you became an Australian resident for taxation purposes.

Prior to becoming a resident of Australia for taxation purposes you opened a number of investments.

After becoming an Australian resident for taxation purposes you opened other investments and then you closed all the investments.

You travelled to country B to close and redeem investment 1 plus interest because according to the financial rules and laws of investment 1 you must personally close the account to collect the money.

You were required to travel to country B to bring back your investment funds plus any interest because under country B's financial rules you are prohibited from transferring funds, via internet banking, from country B to Australia.

You included in your trip to country B the opportunity to take leave, the total number of days you were in country B was 33.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-25

Income Tax Assessment Act 1997 Subsection 104-25(3)

Reason for Decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia, this includes any interest.

Capital Gains Tax (CGT)

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss when a CGT event happens to a CGT asset you own.

Shares acquired on or after 20 September 1985 are CGT assets.

Any net capital gain made during an income year as a result of a CGT event is included in your assessable income by section 102-5 of the ITAA 1997. You are taxed on your net capital gain at your marginal tax rate.

A CGT event C2 happened when you redeem the shares you held (section 104-25 of the ITAA 1997). The time of the event will be the date the shares are redeemed and cease to exist.

You will make a capital gain if the capital proceeds from the shares redeemed are more than the cost base of those shares. A capital loss will arise if the capital proceeds of the shares redeemed is less than the reduced cost base of those shares (subsection 104-25(3) of the ITAA 1997).

By xx you redeemed all your shares plus interest

Therefore, as you were an Australian resident for taxation purposes from xx you are required to report any net capital gain in the assessable income of your tax return.

Travel expenses

Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that they are outgoings of a capital, private or domestic nature.

The courts have considered the meaning of incurred in gaining or producing assessable income. In Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; 56 ALR 785; 8 ATD 431 the High Court stated that: 

For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be relevant and incidental to that end. The words incurred in gaining or producing the assessable income mean in the course of producing such income. 

Taxation Ruling IT 39 considers the deductibility of expenditure incurred in servicing or managing income producing investments.  IT 39 states that where expenditure is incurred in 'servicing' an investment portfolio, the expenditure should properly be regarded as incurred in relation to the management of income producing investments and thus having an intrinsically revenue character.

Taxation Ruling TR 95/33 provides that where it is concluded that the disproportion between the outgoing and the relevant assessable income is essentially explained by reference to the independent pursuit of some other objective (for example, for private purposes), then the outgoing must be apportioned between the pursuit of assessable income and the other objective (Fletcher v. Federal Commissioner of Taxation (1991) 173 CLR 1; 91 ATC 4950; (1991) 22 ATR 613).

Therefore, as the length of time you were overseas was predominately for private purposes your overseas travel is not considered an allowable deduction.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).