Edited version of private advice

Authorisation Number: 1052060467569

Date of advice: 23 November 2022.

Ruling

Subject: CGT - temporary resident

Issue 1

Question 1

Does section 768-915 of the ITAA 1997 apply to disregard the capital gain made by you from the disposal of your shares in Coy Y?

Answer

Yes.

Question 2

Does section 768-915 of the ITAA 1997 apply to disregard the capital gain made by you from Coy Z?

Answer

Yes.

Question 3

Does section 768-915 of the ITAA 1997 apply to disregard the capital gain made by you from Equity Z?

Answer

Yes.

Question 4

Does section 768-915 of the ITAA 1997 apply to disregard the capital gain made by you from ABC Trust identified as non-TAP source?

Answer

Yes.

Question 5

Does section 768-915 of the ITAA 1997 apply to disregard the capital gain made by you from ABC Trust identified as TAP source?

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 held a Temporary Visa during the whole of the financial year.

You were a temporary resident of Australia during the financial year.

You received income from capital gains during the financial year, generated from four sources:

•         shares in Coy Y

•         shares in Coy Z

•         portfolio interest in Equity Z

•         investment product with ABC Trust.

You purchased shares in Coy Y. The unit price was $XX AUD resulting in a cost base of $XXX.

You sold these shares. The unit price was $X AUD resulting in capital proceeds of $XXX.

The total capital gain from the disposal of the shares was $XXX.

Coy Y is a listed company. You and your associates did not own more than 10% of the equity in Coy Y.

You received a capital gain of $X. The capital gain was derived from the disposal of shares in Coy Z.

Coy Z is a listed company. You did not own more than 10% of the equity in Coy Z.

You received income from investment product in an equity fund in the financial year.

Within the income from this source was a capital gain of $X. The capital gain was derived from the disposal of units in Equity Z.

You held investments in ABC Trust during the financial year.

Within your income from this source were net capital gains totalling $X. Your annual tax statement from ABC Trust showed this amount included net capital gains from TAP sources of $X and from non-TAP sources of $X.

Within the annual tax statement provided by ABC Trust, income from trusts was recorded on an attribution basis for AMITs, and on a present entitlement basis for non-AMITs. Income components were calculated based on amounts advised by the relevant fund managers.

Relevant legislative provisions

Income Tax Assessment Act 1997

Section 6-5

Division 855

section 960-195

Reasons for decision

Issue 1

You were a temporary resident for the year.

Section 768-915 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss you make from a CGT event is disregarded if:

a. you are a temporary resident when the CGT event happens and

b. you would not make a capital gain or loss from the CGT event, or the capital gain or loss from the CGT event would have been disregarded under Division 855, if you were a foreign resident when the CGT event happens.

Division 855 applies to foreign residents to disregard a capital gain or loss from a CGT event if the event happens to an asset that is not taxable Australian property (non-TAP). Taxable Australian property (TAP) can include:

•         taxable Australian real property, such as real property situated in Australia; or

•         indirect Australian real property interest.

•         Shares in a resident company do not satisfy the definition of taxable Australian real property, however they may be an indirect Australian real property interest if the shares pass two tests:

• the non-portfolio interest test; and
• the principal asset test.

A membership interest you hold in an entity (the test entity) passes the non-portfolio interest test if the sum of the direct participation interests you and your associates hold in the test entity is 10% or more (section 960-195 of the ITAA 1997).A membership interest you hold in an entity (also the test entity) passes the principle asset test if the total market value of the test entity's assets that are taxable Australian real property (TARP) exceeds the total market value of the test entity's assets that are not TARP (section 855-30 of the ITAA 1997).

Question 1

As your interests in Coy Y were not taxable Australian property, Division 855 of the ITAA 1997 would disregard the capital gains had you been a foreign resident at the time of the CGT event. Consequently, as you were a temporary resident at the time of the sale of your interests in Coy Y, section 768-915 applies and the capital gains made on the disposal of shares in Coy Y are disregarded.

Question 2

As your interests in Coy Z were not taxable Australian property, Division 855 of the ITAA 1997 would disregard the capital gains had you been a foreign resident at the time of the CGT event. Consequently, as you were a temporary resident at the time of the sale of your interests in Coy Z, section 768-915 applies and the capital gains made on the disposal of shares in Coy Z are disregarded.

Question 3

As your interests in Equity Z were not taxable Australian property, Division 855 of the ITAA 1997 would disregard the capital gains had you been a foreign resident at the time of the CGT event. Consequently, as you were a temporary resident throughout the income year, section 768-915 applies and the capital gains from Equity Z are disregarded.

Question 4

ABC Trust has identified these amounts as having a non-TAP (taxable Australian property) source, Division 855 of the ITAA 1997 would disregard the capital gains had you been a foreign resident at the time of the CGT event. Therefore, as you were a temporary resident throughout the income year, section 768-915 applies and the non-TAP capital gains from ABC Trust are disregarded.

Question 5

Although you were a temporary resident throughout the income year, as ABC Trust has identified these amounts as having a TAP source, Division 855 of the ITAA 1997 would not disregard the capital gains had you been a foreign resident at that time. Section 768-915 does not apply. The TAP sourced capital gains from ABC Trust are taxable.