Edited version of your written advice

Authorisation Number: 1051182392599

Date of advice: 20 January 2017

Ruling

Subject: Temporary resident

Questions and Answers:

1. Were you a temporary resident of Australia for tax purposes until the date you obtained your permanent resident visa?

Yes

2. Was your foreign income assessable in Australia prior to the date you obtained your permanent resident visa?

No

3. Is the first element of the cost base of your overseas CGT assets the market value of those assets on the day you obtained your permanent resident visa?

Yes

This ruling applies for the following period:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

You arrived in Australia on date P on a temporary resident visa.

You have been living in Australia since your date of arrival.

You have been an Australian resident for tax purposes since you arrived in Australia.

You are not an Australian citizen.

You were granted permanent resident visa on date Q.

You have an ownership interest in CGT assets located overseas and you acquired your ownership interest in all those assets on or after 20 September 1985.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 - Section 855-45

Income Tax Assessment Act 1997 - Section 768-950

Income Tax Assessment Act 1997- Section 768-955

Income Tax Assessment Act 1997- Section 995-1

Migration Act 1958

Social Security Act 1991

Reasons for decision

Section 6-5 of the Income Assessment Act 1997 (ITAA 1997) provides that where you are an Australian resident for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident of Australia for taxation purposes, your assessable income includes only income from an Australian source. 

Temporary resident

Where certain conditions are met a resident of Australia for tax purposes may also be a temporary resident for tax purposes. As you are a resident for tax purposes we need to consider if you were a temporary resident before the date you obtained your permanent resident visa.

A temporary resident is defined in section 995-1 of the ITAA 1997 as a person: 

1. who holds a temporary visa granted under the Migration Act 1958; and

2. who is not an Australian resident within the meaning of the Social Security Act 1991;  and

3. whose spouse is not an Australian resident within the meaning of the Social Security Act 1991.

Under the Social Security Act 1991, an Australian resident is a person who resides in Australia and is either an Australian citizen or holds a permanent resident visa.

A person is not considered to be a temporary resident if they are an Australian resident and any of conditions above are not satisfied at any time.

In your case:

● you held a temporary subclass visa class until date Q

● you did not hold a permanent visa until date Q

● you are not an Australian citizen.

As you satisfy the conditions for a temporary resident as defined in subsection 995-1(1) of the ITAA 1997, you were a temporary resident of Australia until you received your permanent visa on date Q.

Foreign income received as a temporary resident

From 1 July 2006, taxpayers who are temporary residents do not have to pay tax in Australia on most of their foreign income if they:

● are an individual who is an Australian resident for tax purposes, and

● satisfy the requirements of being a temporary resident.

Section 768-910 of the ITAA 1997 provides that ordinary income derived from a foreign source (excluding employment related income and capital gains on shares and rights acquired under employee share schemes) and is exempt from income tax in Australia when derived by a temporary resident in Australia.

You held assets overseas.

If a capital gains tax event occurs on or after 12 December 2006, a temporary resident is not liable to capital gains tax unless the asset is 'taxable Australian property.'

Taxable Australian property includes:

● a direct interest in real property situated in Australia or a mining, prospecting or quarrying right to minerals, petroleum and quarry materials situated in Australia

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

● an indirect Australian real property interest - which is an interest in an entity, including a foreign entity, where you and your associates hold 10% or more of the entity and the value of your interest is principally attributable to Australian real property.

Therefore, as you were a temporary resident from date P until date Q any foreign sourced income you have derived during that period is exempt from income tax in Australia under section 768-910 of the ITAA 1997. Any capital gain made is also not assessable so long as the asset is not taxable Australian property.

First element of the cost base for assets located overseas

As a general rule, when an individual becomes a resident, they are deemed to have acquired all assets, other than taxable Australian property and assets acquired before 20 September 1985, for the market value of the asset at that time (section 855-45 of the ITAA 1997).

However, this rule does not apply to individuals who come to Australia and become residents of Australia for taxation purposes but who are also temporary residents for taxation purposes. In this case, if the individual remains a resident for taxation purposes and later obtains permanent residency of Australia, then the first element of the cost base of their overseas CGT assets is the market value of those assets on the day the person becomes a permanent resident of Australia.

You have an ownership interest in CGT assets located overseas and you acquired your ownership interest in all those assets on or after 20 September 1985.

You came to Australia and have been an Australian resident for taxation purposes for several years; however, you were also a temporary resident of Australia for taxation purposes. You became a permanent resident of Australia on date Q when you obtained a permanent resident visa.

For CGT purposes, the first element of the cost base of your overseas CGT assets will be the market value of those assets on date Q - the day you obtained your permanent resident visa.