Edited version of your private ruling

Authorisation Number: 1011984386435

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 fact 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. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Foreign exchange provisions - Capital gains tax - Sale of assets - Coming to Australia

Question 1: Will the retirement annuities be assessable in Australia from the date you become an Australian resident?

Answer: Yes.

Question 2: Will the Australian capital gains (CGT) provisions apply to the sale of shares and properties after you become a resident of Australia?

Answer: Yes.

Question 3: Do you include any forex realisation gain you make due to the sale of shares and properties after you become a resident of Australia in your assessable income under the Australian forex provisions?

Answer: No.

Question 4: Can you claim a deduction in relation to any forex realisation loss you make due to the sale of shares and properties after you become a resident of Australia under the Australian forex provisions?

Answer: No.

Question 5: Will the Australian forex provisions apply to withdrawals from your foreign bank account after you become a resident of Australia?

Answer: Yes.

This ruling applies for the following period<s>:

2013-14 income year

2014-15 income year

2015-16 income year

The scheme commences on:

1 July 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.

You have been granted permanent residence in Australia but continue to reside in a foreign country.

You will become a resident of Australia in early 2014 (after your youngest child completes high school at the end of 2013).

Your assets and entitlements from your activities in the foreign country are:

· retirement annuities

· interest bearing loan accounts in foreign resident companies

· share portfolio in foreign currency denominated companies, both private and listed

· properties, both residential and commercial

· cash

The annuities were purchased by way of a lump sum cash consideration paid to an insurance company.

The retirement annuities will be paid into a bank account in the foreign country monthly or annually and remitted to Australia in accordance with the foreign country's Reserve Bank regulations. All other receipts will be paid into the foreign bank account and remitted to Australia in the same manner.

The sale of the shares held in the foreign country are intended to take place before taking up residency in Australia, however, it will be dependent on market conditions, so it is unlikely that they will all be sold by then.

The sale of the properties will be dependent on market conditions, and in all likelihood, the commercial properties, which have long term tenants, will not be disposed of before taking up residency in Australia. Your main residence will also, in all likelihood only be sold after taking up residency in Australia.

Cash balances are being remitted as and when possible in accordance with the foreign country's Exchange Control Regulations. That process will continue after taking up residency.

For the purpose of this private ruling:

· some of the shares will be sold while you are a resident of the foreign country

· the remainder of the shares will be sold after you become a resident of Australia

· some of the properties will be sold while you are a resident of the foreign country

· the remainder of the properties will be sold after you become a resident of Australia

· your main residence will be sold after you become a resident of Australia

· all sale proceeds will be received within 12 months of the contract date.

· the value of the foreign country's currency will rise against the Australian Dollar between the contract date and the payment date for some of these sales

· the value of the foreign country's currency will fall against the Australian Dollar between the contract date and the payment date for the remainder of these sales

· the balance in your foreign bank account will always be greater than $250,000 Australian

· The foreign bank account was opened before 1986

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-5,

Income Tax Assessment Act 1997 Section 102-20,

Income Tax Assessment Act 1997 Section 104-10,

Income Tax Assessment Act 1997 Section 104-260,

Income Tax Assessment Act 1997 Section 104-265,

Income Tax Assessment Act 1997 Section 110-25,

Income Tax Assessment Act 1997 Section 116-20,

Income Tax Assessment Act 1997 Section 118-110,

Income Tax Assessment Act 1997 Section 775-15,

Income Tax Assessment Act 1997 Section 775-20,

Income Tax Assessment Act 1997 Section 775-30,

Income Tax Assessment Act 1997 Section 775-35,

Income Tax Assessment Act 1997 Section 775-45,

Income Tax Assessment Act 1997 Section 775-70,

Income Tax Assessment Act 1997 Section 775-75,

Income Tax Assessment Act 1997 Section 775-145,

Income Tax Assessment Act 1997 Section 775-165,

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 855-45,

Income Tax Assessment Act 1997 Section 960-50 and

International Tax Agreements Act 1953 Section 5.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Summary

The retirement annuities will be assessable in Australia from the date you become an Australian resident.

Detailed reasoning

Australian residents are generally subject to tax in Australia on their world wide income including income in the form of annuities.

Where the income has a source outside Australia, our right to tax the income may be limited by the terms of an agreement for the avoidance of double taxation (a double tax agreement). We have entered into a double tax agreement with the foreign country.

The double tax agreement between the foreign country and Australia provides Australia with a taxing right in relation to retirement annuities as long as they are not connected to services rendered in the discharge of governmental function with the foreign country's Government, a political subdivision or a local authority.

The double tax agreement also provides the foreign country with the right to tax annuities paid to former residents that have been purchased by you by way of a lump sum cash consideration from an insurer in the course of that insurer's business carried on in the foreign country.

A foreign income tax offset may be allowable in Australia if tax is payable in both the foreign country and Australia.

Question 2

Summary

The Australian capital gains provisions will apply to the sale of shares and properties after you become a resident of Australia.

Detailed reasoning

Australian residents are subject to tax in Australia on their world wide capital gains including from the sale of foreign shares and foreign properties.

Foreign residents are only subject to tax in Australia on capital gains made in relation to taxable Australian property. The term 'taxable Australian property' does not include your foreign shares and properties.

Australia's capital gains provisions are modified when foreign residents move to Australia and become Australian residents. They acknowledge the tax free capital gain or loss for the period as a foreign resident by treating the person as if they had acquired their foreign assets at their market value on the day they became an Australian resident (in Australian dollars using the exchange rate as at that date).

There is also a general exemption from the capital gains provisions for assets that you acquired before 20 September 1985.

What is a capital gain or a capital loss?

You can only make a capital gain or a capital loss if a CGT event happens. CGT event A1 happens when you sell a CGT asset.

You make a capital gain if your capital proceeds exceed the cost base of the asset. You make a capital loss if those proceeds are less than the reduced cost base of the asset. Your capital proceeds are what you receive due to the CGT event happening (calculated in Australian Dollars). The cost base and reduced cost base generally include the cost of acquiring an asset, buying and selling expenses and some other ownership costs.

For assets where the sale price is delineated in a foreign currency, it has to be converted into Australian currency. The exchange rate is worked out at the date of the event - that is the date of the sale contract.

There may also be a variation in the exchange rate between the contract date and the date you actually receive the proceeds. Any variance will result in you receiving (in Australian dollar terms) a different amount than has been declared to be the capital proceeds.

CGT event K10 happens if the value of the foreign country's currency rises when compared to the Australian Dollar and you make a capital gain equal to the amount of this rise. CGT event K11 happens if the value of the foreign country's currency falls when compared to the Australian Dollar and you make a capital loss equal to the amount of this fall.

CGT events K10 and K11 ensure that the full economic effect of the sale is treated as part of your overall capital gain or capital loss due to the sale of a CGT asset.

An excess of capital gains over capital losses is included in your assessable income. An excess of capital losses over capital gains is carried forward to reduce future capital gains.

Note: Australia provides a capital gains tax exemption on the sale of a dwelling that has been your main residence for the whole of your ownership period (including your ownership period while you were a resident of the foreign country). It can also apply to up to two hectares of adjacent land that is sold with the dwelling if certain conditions are met.

Question 3

Summary

You do not include any forex realisation gain you make due to the sale of shares and properties after you become a resident of Australia in your assessable income under the Australian forex provisions.

Detailed reasoning

Forex realisation event 2 happens if you cease to have a right to receive foreign currency. This event will happen when the proceeds from the sale of your foreign shares and properties are paid into your foreign bank account.

You make a forex realisation gain if the value of the foreign country's currency rises when compared to the Australian Dollar. This forex realisation gain is disregarded as it relates to the disposal of a CGT asset with the payment being received within 12 months of the disposal. It then becomes a capital gain due to CGT event K10 happening so that the full economic effect of the sale is treated as your capital gain or capital loss (as it relates to the sale of a CGT asset) and is not included in your assessable income under the forex provisions.

Question 4

Summary

You cannot claim a deduction in relation to any forex realisation loss you make due to the sale of shares and properties after you become a resident of Australia under the Australian forex provisions.

Detailed reasoning

Forex realisation event 2 happens if you cease to have a right to receive foreign currency. This event will happen when the proceeds from the sale of your foreign shares and properties are paid into your foreign bank account.

You make a forex realisation loss if the value of the foreign country's currency falls when compared to the Australian Dollar. This forex realisation loss is disregarded as it relates to the disposal of a CGT asset with the payment being received within 12 months of the disposal. It then becomes a capital loss due to CGT event K11 happening so that the full economic effect of the sale is treated as your capital gain or capital loss (as it relates to the sale of a CGT asset) and is not allowable as a deduction under the forex provisions.

Question 5

Summary

The Australian forex provisions will apply to withdrawals from your foreign bank account after you become a resident of Australia.

Detailed reasoning

The relationship between a bank and you as their customer in respect of a bank account is that of debtor and creditor. Thus, when you as customer deposit money into a bank account, you acquire contractual rights as a creditor of the bank. Similarly, when an amount is withdrawn from a bank account, some or all of these previously acquired rights are extinguished or satisfied.

This does not mean that each deposit made by you represents a new contract. Rather, the nature of the contractual relationship remains constant. That is, there is a single chose in action in respect of your right to be repaid the amount previously deposited. Where the bank account is denominated in a foreign currency, you have the right to receive foreign currency.

Forex realisation event 2 happens if you cease to have a right to receive foreign currency. This event will happen each time you make a withdrawal from your foreign bank account.

Bank accounts are generally made up of a number of separate deposits. The Australian forex provisions are applied on the basis that earlier deposits are withdrawn before later deposits (known as first-in first-out or FIFO).

The forex provisions will apply in full to deposits made to the foreign bank account after you become an Australian resident. A full or part exemption will apply to deposits made before you become an Australian resident.

Full exemption - deposits made before 1 July 2003

Any forex gain or loss due to a withdrawal from your foreign bank account will be disregarded if it relates to a deposit made before 1 July 2003 (when the forex provisions commenced).

Part exemption - deposits made between 1 July 2003 and the date you become a resident of Australia

Any forex gain or loss due to a withdrawal from your foreign bank account will be disregarded to the extent it relates to you being a resident of the foreign country as the interest income earned by the account during that period would be exempt income for Australian income tax purposes.

Other notes in relation to your foreign bank account:

· It is not an eligible security for the purpose of the foreign currency exchange provisions that applied between 19 February 1986 and 30 June 2003 as it was opened before 19 February 1986

· It is not a traditional security as it was opened before 10 May 1989

· It will not be subject to the capital gains provisions if it was opened before 20 September 1985 (the forex provisions apply in precedence to the capital gains provisions if both can apply)