Edited version of private advice

Authorisation Number: 1052272180633

Date of advice: 24 July 2024

Ruling

Subject: CGT - inherited property - temporary resident

Question

Are you taken to have acquired the property for capital gains tax (CGT) purposes when you ceased to be a temporary resident?

Answer

Yes.

This ruling applies for the following period:

Income year ended 30 June 20XX

The scheme commenced on:

XX XX XXXX

Relevant facts and circumstances

Your parent purchased a home in Country A (the property) prior to 1985 in their name only.

The property was less than 2 hectares in size.

Your other parent's name was not attached to the legal title of the property.

Your parents divorced on X XX 19XX.

Until your parent passed, you and your siblings lived with them as dependents.

Your parent died on X XX 20XX.

Your parent did not leave a will.

You continued to live in the property until XX 20XX

You relocated to Australia in XX 20XX on a temporary visa.

You were granted a permanent resident visa on XX XX 20XX.

You became an Australian Citizen on XX XX 20XX

The property inheritance process under country A law was concluded in XX 20XX

You and your siblings each inherited a share of the property.

Your other parent did not make a claim over the property.

Your siblings continued to live in the property until it was rented out.

The property registration was concluded under country A law on XX XX 20XX The property was transferred to you and your siblings in equal shares.

You and your siblings sold the property on XX XX 20XX.

Since coming to Australia, you have not owned any property that you have lived in as your main residence.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 128-15

Income Tax Assessment Act 1997 section 128-20

Income Tax Assessment Act 1997 section 768-950

Income Tax Assessment Act 1997 section 768-955

Income Tax Assessment Act 1997 section 855-45

Reasons for decision

Dwelling acquired from a deceased estate

When a tax resident of Australia inherits a property as a beneficiary of a deceased estate there are a number of sections of the legislation involved in deciding what the cost base is and what date is used as the market value of the property.

A capital gain or capital loss you make from a CGT event (for example, sale of a property) that happens in relation to a CGT asset that is a dwelling or your ownership interest in it is disregarded if:

a)    you are an individual; and

b)    the dwelling was your main residence throughout your ownership period; and

c)    the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person (subsection 118-110(1) of the ITAA 1997).

Where a CGT asset passes to a beneficiary of a deceased estate, the legal personal representative, or beneficiary, is taken to have acquired the asset on the day the deceased died (section 128-15 of the ITAA 1997).

A CGT asset passes to a beneficiary of a deceased estate if the beneficiary becomes the owner of the asset in various ways, including:

a)     under a will, or that will as varied by a court order or

b)     by operation of an intestacy law, or such a law as varied by a court order (section 128-20 of the ITAA 1997).

In your case, it is accepted that your ownership interest in the property in country A passed to you as a beneficiary of a deceased estate because the ownership interest passed to you under an intestacy law. Therefore, the exclusion in paragraph 118-110(1)(c) of the ITAA 1997 applies to you so that you are not eligible for the main residence exemption in section 118-110 of the ITAA 1997 in respect to the sale of the property.

A capital gain or loss you make from a CGT event that happens in relation to a dwelling acquired from a deceased estate may be disregarded if certain conditions are met. However, this concession does not apply if the deceased was a foreign resident just before the deceased's death (section 118-195 of the ITAA 1997).

In your case, your parent was a foreign resident just before they died; therefore, you are not able to disregard a capital gain or loss made from the sale of the property under section 118-195 of the ITAA 1997.

Becoming an Australian resident for tax purposes

At the time you become an Australian resident, the first element of the cost base and reduced cost base of a CGT asset that is not taxable Australian property (eg not Australian real estate) is its market value at that time You are also taken to have acquired the asset for CGT purposes at the time you became an Australian resident (section 855-45 of the ITAA 1997).

However, section 768- 950 of the ITAA 1997 states that section 855-45 does not apply to your becoming an Australian resident if you are a 'temporary resident' immediately after you become an Australian resident.

Section 768- 955 of the ITAA 1997 states that first element of the cost base and reduced cost base of the asset (at the time you ceased to be a temporary resident) is its market value at that time. You are also taken to have acquired the asset for CGT purposes at the time you ceased to be a temporary resident.

Section 995-1 of the ITAA 1997 states that you are a temporary resident if:

•         you hold a temporary visa granted under the Migration Act 1958;

•         you are not an Australian resident within the meaning of the Social Security Act 1991; and

• your spouse is not an Australian resident within the meaning of the Social Security Act 1991.

Under the Social Security Act 1991, an Australian resident is generally a person who resides in Australia and is either an Australian citizen or the holder of a permanent resident visa.

In your case, you relocated to Australia in XX 20XX and became a resident for tax purposes at that time. You also arrived in Australia under a temporary resident visa. You were subsequently granted a permanent resident visa on XX XX 20XX.

From the above, as you acquired your ownership interest in the property from a deceased estate, you would ordinarily have been taken to have acquired the property on the day your parent died (under section 128-15 of the ITAA 1997). This is the case even though your ownership interest was only ratified under country A law in 20XX. This means that you had an ownership interest in the property at the time you became a tax resident of Australia in 20XX

Therefore, as you were also a temporary resident when you relocated here in 20XX, the acquisition rule in section 855-45 does not apply to you. Consequently, on the date you were granted a permanent resident visa, section 768- 955 of the ITAA 1997 applies so that the first element of the cost base and reduced cost base of your ownership interest in the property, at the time you ceased to be a temporary resident, is its market value at that time. You are also taken to have acquired the asset for CGT purposes at the time you ceased to be a temporary resident.