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Subject: Capital Gains Tax - Sale of shares by foreign resident

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 period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You are a resident of an overseas country and own shares in an Australian company (company A).

You own a percentage of shares in company A and are a director of company A.

You do not own shares in any other Australian company

You are not a resident or citizen and have no family or place of residence in Australia.

Your de-facto spouse is an Australian citizen who currently resides in the an overseas country.

Company A does not own any direct or indirect interests in taxable Australian property.

Company A holds shares in a company that does not directly or indirectly hold interests in taxable Australian property

You will sell these shares and make a capital gain.

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

Reasons for decision

The Australian government has introduced amendments to the capital gains tax (CGT) rules as they apply to foreign residents by narrowing the range on which non-residents are subject to Australian CGT.

This applies for CGT events that happened on or after 12 December 2006.

The assets held by foreign residents that can give rise to an Australian CGT liability are known as taxable Australian property.

There are five categories of assets that are taxable Australian property:

1.       Taxable Australian real property (directly held);

2.       Indirect Australian real property interests (other than category 5);

3.       Business assets used in an Australian permanent establishment of a foreign resident;

4.       Options or rights over assets in categories 1-3, and

5.       Assets where a capital gain or capital loss is deferred when an individual ceases to be

an Australian resident.

Australian shares in public companies disposed of by a foreign resident are generally not subject to CGT, as they would not normally comprise taxable Australian property.

However, shares which fall into the fifth category may be subject to CGT.

Foreign residents are only subject to capital CGT when a CGT event happens to taxable Australian property.

You disregard a capital gain from a CGT event if you are a foreign resident and the event happens in relation to an asset that is not taxable Australian property.

As you are currently a foreign resident, any capital gain or capital loss made on the subsequent disposal of the shares you acquired whilst a foreign resident will be disregarded, as the shares are not taxable Australian property.