Tax Law Improvement Act (No. 1) 1998 (46 of 1998)

Schedule 1   Amendment of the Income Tax Assessment Act 1997

1   Part 3-3 Division 136

Division 136 - Non-residents

Table of Subdivisions

Guide to Division 136

136-A Making a capital gain or loss

136-B Becoming a resident

Guide to Division 136

136-1 What this Division is about

A non-resident makes a capital gain or loss only if a CGT event happens to a CGT asset that has the necessary connection with Australia. There are also rules dealing with what happens when a non-resident becomes a resident.

Subdivision 136-A - Making a capital gain or loss

Table of sections

136-5 What if you are a non-resident just before a CGT event

136-10 Making a capital gain or loss from most CGT events

136-15 Making a capital gain or loss from CGT events D1 and E9

136-20 Those events you cannot make a capital gain or loss from

136-25 When an asset has the necessary connection with Australia

136-30 Reducing a capital gain or loss from a business asset

[This is the end of the Guide.]

136-5 What if you are a non-resident just before a CGT event

This Subdivision sets out what happens if just before a *CGT event happens:

(a) you are an individual or a company that is not an Australian resident; or

(b) you are the trustee of a trust that is not a *resident trust for CGT purposes.

136-10 Making a capital gain or loss from most CGT events

You make a *capital gain or *capital loss from a *CGT event set out in this table only if the thing referred to in the relevant row of the table has the *necessary connection with Australia.

The last column lists each category of *CGT asset having the *necessary connection with Australia that is relevant to the event.

Note 1: Special rules apply to CGT events D1 and E9: see section 136-15.

Note 2: There are some CGT events for which you cannot make a capital gain or loss: see section 136-20.

Note 3: For the categories of CGT assets having the necessary connection with Australia: see section 136-25.

Non-resident gains and losses

Event number


Description of event:

This has the necessary connection with Australia:

Category of CGT asset:

A1

Disposal of a CGT asset

the CGT asset

1 to 8

B1

Use and enjoyment before title passes

the CGT asset

1, 2

C1

Loss or destruction of a CGT asset

the CGT asset

1, 2

C2

Cancellation, surrender and similar endings

the CGT asset

1 to 8

D2

Granting an option

the option

7

E1

Creating a trust over a CGT asset

the CGT asset

1 to 8

E2

Transferring a CGT asset to a trust

the CGT asset

1 to 8

E3

Converting a trust to a unit trust

the CGT asset

1 to 8

E4

Capital payment for trust interest

the units or interest in the trust

4, 6

E5

Beneficiary becoming entitled to a trust asset

the CGT asset

1 to 8

E6

Disposal to beneficiary to end income right

the CGT asset

1 to 8

E7

Disposal to beneficiary to end capital interest

the CGT asset

1 to 8

E8

Disposal by beneficiary of capital interest

the interest in the trust capital

4

F1

Granting a lease

the CGT asset the subject of the lease

1, 2

F2

Granting a long-term lease

the land

1

F3

Lessor pays lessee to get lease changed

the CGT asset the subject of the lease

1, 2

F4

Lessee receives payment for changing lease

the CGT asset the subject of the lease

1, 2

F5

Lessor receives payment for changing lease

the CGT asset the subject of the lease

1, 2

G1

Capital payment for shares

the shares

3, 5, 8

G2

Shifts in share values

the shift losing shares

3, 5, 7, 8

G3

Liquidator declares shares worthless

the shares

3, 5, 8

H1

Forfeiture of deposit

the CGT asset the subject of the prospective purchase or other transaction

1 to 8

H2

Receipt for event relating to a CGT asset

the CGT asset

1 to 8

J1

Company ceasing to be member of wholly-owned group

the CGT asset the subject of the roll-over

1 to 8

K1

Partial realisation of intellectual property

the item of intellectual property

2

K3

Asset passing to tax advantaged entity

the CGT asset

1 to 8

K4

CGT asset starts being trading stock

the CGT asset

1 to 8

K6

Pre-CGT shares or trust interest

the shares or interest in the trust

3 to 6

136-15 Making a capital gain or loss from CGT events D1 and E9

(1) You make a *capital gain or *capital loss from *CGT event D1 (about creating contractual or other rights) only if one of the items in this table is satisfied.

CGT event D1

Item

In this situation:

This requirement is satisfied:

1

The *capital proceeds from the event are your *ordinary income

The proceeds are *derived from an *Australian source

2

The *capital proceeds from the event are not your *ordinary income

If the proceeds were your *ordinary income, they would have been *derived from an *Australian source

(2) You make a *capital gain or *capital loss from *CGT event E9 (about creating a trust over future property) only if one of the items in this table is satisfied.

CGT event E9

Item

In this situation:

This requirement is satisfied:

1

The consideration is your *ordinary income

The consideration is *derived from an *Australian source

2

The consideration is not your *ordinary income

If the consideration was your *ordinary income, it would have been *derived from an *Australian source

136-20 Those events you cannot make a capital gain or loss from

This table sets out those *CGT events from which you cannot make a *capital gain or *capital loss.

CGT events not relevant

Event number

Description of event:

See section:

C3

End of option to acquire shares etc.

104-30

D3

Granting a right to income from mining

104-45

I1

Individual or company stops being resident

104-160

I2

Trust stops being a resident trust

104-170

K2

Bankrupt pays amount in relation to debt

104-210

K5

Special collectable losses

104-225

136-25 When an asset has the necessary connection with Australia

There are 8 categories of *CGT assets having the necessary connection with Australia . They are set out in this table.

CGT assets having the necessary connection with Australia

Category number


Description

1

Any of these:

(a) land, or a building or structure, in Australia;

(b) an interest in land in Australia, or a right, power or privilege to do with land in Australia;

(c) a *stratum unit in Australia, or an interest in a stratum unit in Australia;

(d) a *share in a company that owns a building on land in Australia that gives you a right to occupy a flat or home unit in the building

2

A *CGT asset that you have used at any time in carrying on a *business through a *permanent establishment in Australia

3

A *share, or an interest in a *share, in a company that is an Australian resident, and a *private company, for the income year in which the *CGT event happens

4

An interest in a trust that is a *resident trust for CGT purposes for the income year in which the *CGT event happens

5

A *share, or an interest in a *share, in a company:

(a) that is an Australian resident, and a *public company, for the income year in which the CGT event happens; and

(b) in which you and your *associates beneficially owned at least 10% of the issued share capital (except share capital that carried a right only to participate in a distribution of profits or capital to a limited extent) at any time during the 5 years before the *CGT event happens

6

A unit in a unit trust:

(a) that is a *resident trust for CGT purposes for the income year in which the CGT event happens; and

(b) in which you and your *associates beneficially owned at least 10% of the issued units in the unit trust at any time during the 5 years before the *CGT event happens

7

An option or right to *acquire a *CGT asset of the kind referred to above

8

A *share or security in a company that you received as consideration for your *disposal of another *CGT asset to the company and:

(a) you chose to obtain a roll-over under Division 122 (roll-over of assets by an individual or partnership to a company) or Subdivision 126-B (roll-over of assets within a company group) because of the disposal; and

(b) either you were not an Australian resident just before the disposal, or you were a trustee of a trust that was not a *resident trust for CGT purposes for the income year in which the disposal happened

136-30 Reducing a capital gain or loss from a business asset

(1) The *capital gain or *capital loss you make from a *CGT asset that you have used at any time in carrying on a *business through a *permanent establishment in Australia is reduced if you used it in this way for only part of the period from when you *acquired it to when the CGT event happened.

(2) The gain or loss is reduced by this fraction:

Number of days the asset was not used in the way described in subsection (1) / Number of days in that period

Subdivision 136-B - Becoming a resident

Table of sections

136-40 Individual or company becomes resident

136-45 Trust becomes a resident trust

136-50 CFC becomes an Australian resident

136-40 Individual or company becomes resident

(1) If you become an Australian resident, there are rules relevant to each *CGT asset that you owned just before you became an Australian resident, except an asset:

(a) having the *necessary connection with Australia; or

(b) that you *acquired before 20 September 1985.

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

(3) Also, Part 3-1 and this Part apply to the asset as if you had *acquired it at the time you became an Australian resident.

136-45 Trust becomes a resident trust

(1) If a trust becomes a *resident trust for CGT purposes, there are rules relevant to each *CGT asset that the trustee owned just before the trust became a resident trust for CGT purposes, except one:

(a) having the *necessary connection with Australia; or

(b) that the trustee *acquired before 20 September 1985.

(2) The first element of the *cost base and *reduced cost base of the asset (at the time the trust becomes a *resident trust for CGT purposes) is its market value at that time.

(3) Also, Part 3-1 and this Part apply to the asset as if the trustee had *acquired it at the time the trust became a *resident trust for CGT purposes.

Exception

(4) This section does not apply to a trust if, just before it became a *resident trust for CGT purposes, it was a *CFT because of paragraph 342(a) of the Income Tax Assessment Act 1936.

Note: This section is disregarded in calculating the attributable income of a trust: see section 102AAZB of the Income Tax Assessment Act 1936.

136-50 CFC becomes an Australian resident

(1) This section applies to a *CFC that stops at a time (the residence change time ) being a resident of a *listed country or an *unlisted country and becomes an Australian resident.

(2) Section 136-40 does not apply to the *CFC.

(3) The modifications of this Part and Part 3-1 in sections 411 to 414 (inclusive) of the Income Tax Assessment Act 1936 have the effect they would have, in relation to each *commencing day asset owned by the *CFC at the residence change time, if those modifications were used to work out the taxable income of the CFC rather than its *attributable income.

(4) However, if a *capital gain on a *commencing day asset of the *CFC (for a period before the residence change time) was subject to tax (within the meaning of Part X of the Income Tax Assessment Act 1936) in a *listed country, the modifications of this Part and Part 3-1 in sections 411 to 414 (inclusive) of the Income Tax Assessment Act 1936 have the effect they would have in relation to the asset if:

(a) those modifications were used to work out the taxable income of the CFC rather than its *attributable income; and

(b) the *commencing day of the CFC were the residence change time.

Note: This section is disregarded in calculating the attributable income of a CFC: see section 410 of the Income Tax Assessment Act 1936.

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