Edited version of private advice

Authorisation Number: 1051984475153

Date of advice: 24 May 2022

Ruling

Subject: CGT - temporary resident

Question 1

Did you cease to be a temporary resident for Australian taxation purposes on 2 March 20XX?

Answer

Yes.

Question 2

Is the rental income from your property in country A assessable in Australia from 2 March 20XX?

Answer

Yes.

Question 3

Is the sale of your property in Country A subject to capital gains tax (CGT) in Australia?

Answer

Yes.

Question 4

Is the cost base of your property in Country A the market value of the property at the time you cease to be a temporary resident for Australian taxation purposes?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are citizens of Country A.

You arrived in Australia on a temporary visa.

Your intention at the time you arrived in Australia was to migrate to Australia permanently and you became Australian tax residents at that time.

You owned an investment property in Country A which had been rented out since you first arrived in Australia.

You have full time employment, own a main residence and another rental property in Australia.

You applied for an Australian permanent resident visa.

You were granted an Australian permanent resident visa on approximately a year later by the Department of Home Affairs.

You were physically in Australia on the date your Australian permanent visa was granted.

You sold the property in Country A after the date you were granted the permanent resident visa.

You were not subject to capital gains tax in Country A on the sale of your property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 6-15

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 768-910

Income Tax Assessment Act 1997 Section 768-915

Income Tax Assessment Act 1997 Section 768-950

Income Tax Assessment Act 1997 Section 768-955

Income Tax Assessment Act 1997 Section 855-10

Income Tax Assessment Act 1997 Section 855-15

Income Tax Assessment Act 1997 Section 855-45

Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision

As a general rule, the assessable income in Australia of an individual who is a resident of Australia for taxation purposes will include all the ordinary and statutory income they earn from all sources, in and out of Australia. For example, rental income is a form of ordinary income and capital gains are a form of statutory income.

Although an individual may be a resident of Australia for taxation purposes, he or she may also be a temporary resident for taxation purposes at the same time. Where this is the case, the temporary resident provisions of Australia's tax law may operate to exclude certain foreign source income of the individual from being assessable in Australia.

Question 1

Subsection 995-1 of the ITAA 1997 provides that an individual is a temporary resident for taxation purposes if:

a)    they hold a temporary visa granted under the Migration Act 1958, and

b)    they are not an Australian resident within the meaning of the Social Security Act 1991, and

c)    they do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

Based on the facts provided, you were a temporary resident from when you migrated to Australia until

you were granted a permanent resident visa because:

•         you held a temporary visa issued under the Migration Act 1958, and

•         neither you nor your spouse are Australian residents within the meaning of the Social Security Act 1991.

Subsection 995-1 of the ITAA 1997 provides you are not a temporary resident if you have been an Australian resident (within the meaning of this Act), and any of paragraphs (a), (b) and (c) (stated in 'temporary residents for taxation purposes' above) are not satisfied, at any time after the commencement of this definition.

The Social Security Act 1991 defines an Australian resident as a person who resides in Australia and is an Australian citizen, the holder of a permanent visa, or a protected special category visa holder who was in Australia on or before 26 February 2001.

For immigration and citizenship purposes, a permanent resident (subclass 189) visa starts:

•         On the day your visa is granted if you are in Australia

•         On the day you enter Australia on the visa if you are outside of Australia.

In your case, you were granted a permanent visa subclass 189 by the Department of Home Affairs and you were in Australia on the date you were granted the visa.

Therefore, you ceased being a temporary resident on the date you were granted the permanent residency visa.

Question 2

Subdivision 768-R of the ITAA 1997 provides an exemption for most foreign income derived by individuals who are temporary residents.

Section 768-910 of the ITAA 1997 provides that ordinary income (such as rental income) and statutory income (with the exception of net capital gains) derived by a temporary resident from sources outside Australia are non-assessable, non-exempt income.

Capital gains or losses made by temporary residents are specifically dealt with by section 768-915 of the ITAA 1997. In simple terms, the effect of section 768-915 of the ITAA 1997 is that temporary residents are subject to the same capital gains tax (CGT) rules as foreign residents. This means that if you are a temporary resident, you can disregard (and therefore exclude from your assessable income in Australia) any gain or loss made from a CGT event that is not taxable Australian property. Real property located in a foreign country is not taxable Australian property.

As you were a temporary resident for taxation purposes up until you were granted a permanent resident visa, your assessable income in Australia does not include the foreign rental income from New Zealand for that period.

However, as you ceased to be a temporary resident when were granted a permanent resident visa, you are required to declare any foreign rental income in your Australian income tax returns from that date until the date you sold the property.

Question 3

Subsection 6-10(2) of ITAA 1997 provides that the assessable income of an Australian resident includes statutory income derived directly or indirectly from all sources, whether in or out of Australia, during an income year.

A capital gain or capital loss is made when a CGT event happens to a CGT asset you own. The most common CGT event is CGT event A1 which occurs when your ownership interest in a CGT asset is transferred to another entity, such as the disposal of a property.

Section 102-20 of the ITAA 1997 provides that you make a capital gain or capital loss if and only if a CGT event happens. The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset to someone else. For example, if you sell a property, land and dwellings are CGT assets. The time of the event is when you enter into the contract for the disposal (section 104-10 of the ITAA 1997).

A capital gain or capital loss derived from worldwide assets is considered statutory income, which is required to be included as assessable income in an Australia income tax return of an individual who is a resident of Australia for taxation purposes.

In your case, you are considered to be an Australian resident on the contract date of sale for your property in Country A. Therefore, you are required to report any capital gains or capital losses made on the sale of your property in Country A.

You are eligible to reduce your capital gain by 50% with the CGT discount, as both of the following apply:

• you owned the asset for at least 12 months
• you are an Australian resident for tax purposes.

Question 4

Section 768-955 of ITAA 1997 states that if you are a temporary resident and you then cease to be a temporary resident (but remain, at that time, an Australian resident), you are taken to have acquired your CGT assets such as foreign property at the same time, for their market value at that time. This is sometimes called 'deemed acquisition'.

This does not apply to assets:

•         you acquired before CGT started on 20 September 1985

•         that were taxable Australian property, such as real estate in Australia and assets used to carry on a business in Australia. The general cost base rules apply to taxable Australian property.

You ceased to be a temporary resident for taxation purposes when your permanent resident visa was granted. Therefore, you are deemed to have acquired your property in Country A for the market value at that time.