Edited version of private advice

Authorisation Number: 1052172630467

Date of advice: 29 September 2023

Ruling

Subject: CGT - property disposal

Question 1

Does the foreign resident capital gains withholding scheme apply to your interest on the sale of the Property?

Answer

No.

Question 2

Are you entitled to a full main residence exemption on the disposal of the Property?

Answer

No.

Question 3

Is the first element of the Property's cost base the purchase price?

Answer

Yes.

Question 4

Are the capital proceeds of the Property equal to the amount you received when you sold the Property?

Answer

Yes.

Question 5

Are you entitled to a partial Capital Gains Tax (CGT) exemption on the capital gain you made when you disposed the Property?

Answer

No.

Question 6

Was there an A1 CGT event when you disposed of the Property?

Answer

Yes.

This ruling applies for the following period:

Year ended XX June 20XX

The scheme commenced on:

XX July 20XX

Relevant facts and circumstances

You purchased the Property.

You and your ex-spouse divorced.

Following proceedings in the Family Court of Australia, orders were made that the property was to be disposed.

The property was disposed via contract for sale.

You have been a foreign resident for tax purposes for the entire holding period of the Property.

Relevant legislative provisions

Tax Administration Act 1953 Sch 1 14-D

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 116-20

Income Tax Assessment Act 1997 section 110-25

Income Tax Assessment Act 1997 subdivision 115-A

Reasons for decision

Question 1

Does the foreign resident capital gains withholding scheme apply to your interest on the sale of the Property?

Summary

No.

Detailed reasoning

Foreign resident capital gains withholding (FRCGW) applies to vendors disposing of certain taxable property under contracts entered into from 1 July 2016 where the contract price is $750,000 or more.

As the Property was sold below $750,000, it is below the threshold and FRCGW does not apply to the sale of the Property.

Question 2

Are you entitled to a full main residence exemption on the disposal of the Property?

Summary

No.

Detailed reasoning

If you are a foreign resident, you are not entitled to the main residence exemption from capital gains tax (CGT) for property sold after 30 June 2020, unless you satisfy the requirements of the life events test. If you don't meet the life events test, you aren't entitled to any main residence exemption, even if you were a resident for some of the ownership period.

The life events test is where the person has been a foreign resident for 6 continuous years or less and during that period there was either terminal illness, death or a family law issue. However, you cannot use the life events test if you are an excluded foreign resident.

You are an excluded foreign resident at a particular time if you are a foreign resident at that time and the continuous period ending at that time for which you have been a foreign resident is more than 6 years.

In your case, you had been a foreign resident for more than 6 years before the sale of the property, and therefore you are an excluded foreign resident. Therefore, you are not entitled to the main residence exemption and are liable for CGT on the sale of the property.

Question 3

Is the first element of the Property's cost base the purchase price?

Summary

Yes.

Detailed reasoning

The cost base of a CGT asset is made up of five elements. The first element is the total of the money you paid (or required to be paid) for the asset and the market value of property given (or required to be given) to acquire the asset.

Question 4

Are the capital proceeds of the Property equal to the amount you received when you sold the Property?

Summary

Yes.

Detailed reasoning

Capital proceeds are what you receive, or are entitled to receive, from a CGT event, such as selling an asset.

For most CGT events your capital proceeds will be money. They can also be the value of any property you receive or are entitled to receive.

Question 5

Are you entitled to a partial CGT exemption on the capital gain you made when you disposed the Property?

Summary

No.

Detailed reasoning

Section 115-25 of the ITAA 1997 provides that the partial exemption may apply if you held a CGT asset for more than 12 months. However, section 115-100 and section 115-115 works to deny you a discount to the extent that you accrued a capital gain while a foreign resident. You have been a foreign resident for the entire holding period of the asset, and therefore there is no period that you would be entitled to apply a partial exemption.

Question 6

Was there an A1 CGT event when you disposed of the Property?

Summary

Yes.

Detailed reasoning

When you dispose of an asset that is subject to CGT, it is called a CGT event. This is the point at which you make a capital gain or loss. Common disposals that will trigger a CGT event include selling an asset.

Here, selling the Property (disposal of the asset) is an A1 CGT event. The time of the CGT event is when the disposal contract is entered into.

A capital gain is calculated from the capital proceeds from disposal less the asset's cost base and a capital loss is calculated from the asset's reduced cost base less the capital proceeds.

You will be required to lodge your income tax return to declare the capital gain or loss from the disposal of the Property.