Edited version of private advice

Authorisation Number: 1052045447212

Date of advice: 17 October 2022

Ruling

Subject: CGT - temporary resident

Question 1

Are you a temporary resident of Australia as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Are you subject to capital gains tax (CGT) on the sale of your ASX shares?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You lived in Country A until late in the 20XX income year when you arrived in Australia with your spouse.

You and your spouse are in Australia under the provisions of temporary visas.

The visa allows you to stay in Australia for up to X years.

You can apply for permanent residency after you have been in Australia for at least X years.

Your intention is to stay in Australia indefinitely.

During the 20XX income year you:

• Owned an investment property which first earnt rental income on during the 20XX income year
• Bought and sold ASX shares
• Received franked and unfranked dividends from ASX shares
• Received interest income from an Australian bank account

Relevant legislative provisions

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 section 768-915

Income Tax Assessment Act 1997 section 855-10

Reasons for decision

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

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

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

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

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.

Based on the facts you have provided you are a temporary resident of Australia for taxation purposes because:

•      you hold 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.

Question 2

Are you subject to capital gains tax (CGT) on your ASX shares?

Summary

No.

Detailed reasoning

Section 768-915 of the ITAA 1997 allows a taxpayer to disregard a capital gain or capital loss they make from a capital gains tax (CGT) event if they are a temporary resident when, or immediately before, the CGT event happens provided the capital gain or capital loss would have been disregarded under Division 855 of the ITAA 1997 if the taxpayer were a foreign resident at that time.

A capital gain or capital loss that a taxpayer makes from a CGT event happening in relation to non-taxable Australian property is disregarded under subsection 855-10(1) of the ITAA 1997 if the taxpayer is a foreign resident, or the trustee of a foreign trust for CGT purposes, just before the CGT event happens.

In your case, you were a temporary resident who disposed of ASX shares that were non-taxable Australian property and the capital gain or loss you made from the disposal would have been disregarded if you were a foreign resident.

Therefore, you can disregard the capital gain you made from the disposal of the ASX shares.

Additional Information

Tax Free Threshold

If you're an Australian resident for tax purposes you can claim the tax-free threshold each income year. You can usually claim the tax-free threshold on the first $18,200 of income you earn in the income year. You can choose to claim or not claim the tax-free threshold on the TFN declaration you give to your payer.

If you are an Australian resident for tax purposes during the income year, you will receive a part-year tax-free threshold. The part year tax-free threshold has 2 components:

•      a flat amount of $13,464

•      an additional $4,736 - we work on the number of months you were in Australia during the income year, including the month you arrived.

If you're a non-resident for the full income year, you can't claim the tax-free threshold. This means you pay tax on every dollar of income you earn in Australia.

Franked Dividends and Franking Credits

If the franked dividend is from an Australian company and was received while you are temporary resident then the franked dividend will be assessable income and will need to be declared on your income tax return. You can then claim the associated franking credits.

Under section 768.910, ordinary and statutory income (other than a net capital gain) derived from a foreign source while you are a temporary resident is non-assessable non-exempt income (except if related to employment).

If the franked dividend is not from an Australian company it will be non-assessable non-exempt income. You cannot use any franking credit attached to franked dividends to reduce the amount of tax payable on other Australian income and you cannot get a refund of the franking credit.

Withholding Tax

If you are a foreign resident, tax is generally withheld in Australia from interest, unfranked dividends and royalties you earn in Australia.

You advise the Australian financial institution - your payer - that you are a foreign resident, and they withhold tax in Australia at the time of payment. You won't need to declare this income in an Australian tax return.

If you advise the Australian financial institution - your payer - that you are an Australian resident for tax purposes they will not withhold tax in Australia at the time of payment. You will need to declare this income in an Australian tax return.