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Edited version of your written advice
Authorisation Number: 1051285267635
Date of advice: 20 September 2017
Ruling
Subject: Non-resident sale of shares
Question
Will any capital gain or capital loss you make on the sale of your Australian shares whilst a foreign resident be disregarded?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2018
The scheme commences on:
1 July 2017
Relevant facts and circumstances
You are a non-resident for tax purposes.
You are a beneficiary of a deceased Estate.
The deceased was an Australian resident for taxation purposes at the time of their passing.
You inherited a number of shares from the estate.
These shares are in Australian public listed companies.
Each group of shares that you now hold represent less than 10% of total shares issued for each of the companies.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 855-10
Income Tax Assessment Act 1997 Section 855-15
Income Tax Assessment Act 1997 Section 855-20
Income Tax Assessment Act 1997 Section 855-25
Income Tax Assessment Act 1997 Section 855-30
Income Tax Assessment Act 1997 Section 960-195
Reasons for decision
Section 855-10 of the ITAA 1997 states that you disregard a capital gain or capital loss from a CGT event if:
a. you are a foreign resident and
b. the CGT event happens in relation to a CGT asset that is not a taxable Australian property.
Five categories of CGT assets that are taxable Australian property are set out in the table in section 855-15 of the ITAA 1997:
1. Taxable Australian real property;
2. A CGT asset that:
a. Is an indirect Australian real property interest; and
b. Is not covered by item 5;
3. A CGT asset that:
a. You have used at any time in carrying on a business through a permanent establishment in Australia; and
b. Is not covered by item 1, 2 or 5;
4. An option or right to acquire a CGT asset covered by item 1, 2 or 3; and
5. A CGT asset that is covered by subsection 104-65(3) of the ITAA 1997(choosing to disregard a gain or loss on ceasing to be an Australian resident).
Section 855-20 of the ITAA 1997 states that a CGT asset is taxable Australian real property if it is:
a. real property situated in Australia; or
b. a mining, quarrying or prospecting right (to the extent that the right is not real property), if the minerals, petroleum or quarry materials are situated in Australia.
Shares in a resident company do not satisfy the definition of taxable Australian real property as they are neither real property (within the ordinary meaning of that term) nor a mining, quarrying or prospecting right.
Indirect Australian property interest
An indirect Australian property interest (section 855-25 of the ITAA 1997) will only exist where a foreign resident has membership interest in an entity and that entity passes two tests:
● the non-portfolio interest test; and
● the principal asset test.
As set out in section 960-195 of the ITAA 1997, a membership interest held by an entity (the holding entity) in another entity (the test entity) passes the non-portfolio test if the sum of the direct participation interests held by the holding entity and its associates in the test entity is 10% or more.
You do not own more than 10% of the shares in the public companies.
Therefore you are able to disregard any CGT gain or loss that may arise from the sale of the shares you inherited from the deceased estate.
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