Edited version of your private ruling

Authorisation Number: 1012525716418

Ruling

Subject: Capital gains tax - disposal of foreign real estate

Question and answer:

Is the gain from the disposal of an overseas property included in your assessable income in Australia?

Yes.

This ruling applies for the following period:

1 July 2011 to 30 June 2012.

The scheme commenced on:

1 July 2011.

Relevant facts and circumstances:

You acquired a residential property in another country after 20 September 1985.

You became a resident of Australia after you acquired the foreign property.

You recently disposed of the foreign property.

You made a capital gain on the disposal and you included that gain in your Australian income tax return for the relevant year.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 102-10

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 109-55

Income Tax Assessment Act 1997 Section 110-25

Income Tax Assessment Act 1997 Section 112-87

Income Tax Assessment Act 1997 Section 855-45

Reasons for decision

If you are a resident of Australia for taxation purposes, your assessable income in Australia includes your worldwide income, including any capital gains you make from the disposal of capital gains tax (CGT) assets that you own in Australia or overseas.

The CGT provisions of Australia's tax law are contained in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (ITAA 1997).

As a general rule a CGT asset must have been acquired on or after 20 September 1985 for the CGT provisions to apply to it.

Real estate is a CGT asset and does not have to be Australian real estate for the CGT provisions to apply to it.

A capital gain is made from the disposal of a CGT asset if the cost base of the asset is less than the capital proceeds from the disposal.

Generally, the cost base is made up of the following five elements:

· The first element: money or property given for the asset.

· The second element: incidental costs of acquiring the asset or that relate to the CGT event.

· The third element: costs of owning the asset.

· The fourth element: capital costs to increase or preserve the value of your asset or to install or move it.

· The fifth element: capital costs of preserving or defending your ownership of or rights to the asset.

In most cases the time of acquisition of a CGT asset will be the time it was purchased and the cost base of the asset will be made up of the costs associated with the five elements described above. However, the rules about acquisition and cost base of CGT assets are modified in certain cases, including:

· When an individual who owns foreign real estate they originally acquired on or after 20 September 1985 becomes an Australian resident (other than a temporary resident), the individual is taken to have acquired the property:

o on the date they become an Australian resident (and the CGT provisions apply to the property from that date forward), and

o the first element of the cost base is the market value of the property at the date they became an Australian resident.

Conclusion

When you became an Australian resident you already owned foreign real estate that you acquired after 20 September 1985. However, under the CGT provisions of Australia's tax law, you are taken to have acquired that property at the time you became an Australian resident and for its market value at that time.

You disposed of the property and made a capital gain from the disposal. You correctly included that gain in your income tax return for the year.