Edited version of private advice

Authorisation Number: 1052155737467

Date of advice: 16 August 2023

Ruling

Subject: Capital gains tax

Question

Do you include the capital gain from the sale of a foreign property in your Australian taxable income?

Answer

No.

Based on the information provided to the Commissioner you will not be required to declare any capital gain from the sale of the property in Country Z in your Australian tax return.

You are a temporary resident of Australia who is absolutely entitled to the trust property and the operation of Section 768-915 of the Income Tax Assessment Act 1997 (ITAA 1997) will exempt you from taxation in Australia.

This ruling applies for the following period:

Year ending 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

You purchased the Country Z property several years ago and used it as your home for a few years.

A couple of years after the property was purchased it was transferred into a Country Z trust (The Trust).

You and your parent are the trustees of the trust.

In accordance with the powers detailed in The Trust deed, all trustees make the following amendment to the original deed:

1. To exclude all beneficiaries listed in paragraph 1, except Individual Z. This exclusion shall be deemed to have taken effect from the relevant date, being the date of creation; and reflect the practical situation that Individual Z has always had a vested and indefeasible interest in all trust property.

2. To vary paragraph 12 of the trust deed to allow Individual Z in the capacity as trustee, to have an absolute and uncontrolled power to exercise any discretion listed in paragraphs 1 to 23 of the trust deed, in her own favour.

This includes having all trust property transferred at her discretion and retaining all proceeds; if any. This change shall be effective from the relevant date and reflects the practical situation that Individual Z has always had a vested and indefeasible interest in trust all property.

In addition to the abovementioned amendments to the trust deed, the trustees today make the minutes of meeting:

3. Individual Z had absolute discretion to deal with all trust property at their own discretion since the creation of the trust. This interest was vested and indefeasible.

4. No beneficiary, other than Individual Z, had an interest in trust property at any time.

5. No trust financial statements have been prepared since creation, as Individual Z had a vested and indefeasible interest in all trust property at all times. Individual Z has been responsible for reporting the income associated with the trust property in their personal tax return and has had the ability to deal with this income at their discretion.

6. The terms of the trust deed have been ignored by the Appointor, Trustee, and all other entities, in favour of the practical situation that Individual Z has always had a vested and indefeasible interest in all trust property.

The Trust minute is effective in making you the sole beneficiary since the trust was established and you have always been the beneficial owner of the property.

The trust minute was signed on a few weeks ago.

The property will sell in a future income year.

You moved to Australia several years ago and you have been a temporary resident since.

You travel back to Country Z to conduct meetings in relation to the property, including in a year where you travelled back to conduct 'mortgage negotiations and property inspections'.

Practically, all major decisions in relation to the property are made when you are in Country Z.

You did not understand the trust instrument, nor the legal ramifications of having a trust. To evidence this you:

•         Has never lodged a Country Z trust tax return but included the trust income and expenses in your personal Country Z tax return.

•         Has a number of bank accounts in Country Z.

When the property is sold, it will be sold at the complete discretion of you and all funds will eventually be transferred to your Australian bank account to be used to purchase an Australian home as you intend to stay in Australia permanently.

The Country Z rental income has not been included in the Australian tax return under the understanding the property belonged to you and this type of foreign property income is not taxable to temporary residents.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 768-915