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Edited version of private advice

Authorisation Number: 1051838398181

Date of advice: 18 May 2021

Ruling

Subject: Capital gains tax

Question

Will your property situated in Country Z be subject to Capital Gains Tax when it is sold?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a citizen of Australia.

You have been living outside Australia since mid 20XX.

You became a resident of Australia for taxation purposes again mid 20XX.

You have a property in Country Z.

You purchased the Country Z property in 20XX.

You lived in this property when you were working in Country Z.

You have rented this property out in Country Z when you have worked in Country X and Country Y.

An offer to purchase the Country Z property has been made to you.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 102-25

Income Tax Assessment Act 1997 section 855-45

Reasons for decision

Capital gains tax (CGT) is the tax you pay on certain capital gains you make. You make a capital gain or a capital loss when a 'CGT event' happens. The most common CGT event A1 happens when you dispose of the asset to another party, for example the disposal of a property. For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset.

Section 855-45 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the capital gains tax (CGT) consequences of a foreign resident individual becoming an Australian resident. If an individual becomes an Australian resident then, for each CGT asset that was owned just before the individual or company became an Australian resident (except an asset that is taxable Australian property or an asset that was acquired before 20 September 1985):

(1)  the asset is taken to have been acquired by the individual at the time of becoming an Australian resident, and

(2)  the first element of the cost base and reduced cost base of the asset at the time of becoming an Australian resident is its market value at that time.

This provision is designed to ensure that gains which accrued on those assets while the person was a foreign resident will be excluded from the CGT provisions.

Therefore, the first element of the cost base for your property in Country Z is the market value of the property when you became an Australian resident on mid 20XX.

The gain (or loss) will be calculated from mid 20XX and the date the property is sold.

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