Edited version of private advice

Authorisation Number: 1052275934917

Date of advice: 18 July 2024

Ruling

Subject: CGT discount

Question

Are you eligible for a partial Capital Gains Tax (CGT) discount?

Answer

No.

This ruling applies for the following period:

Year ending 30 June XXXX

The scheme commenced on:

1 July XXXX

Relevant facts and circumstances

You advised you are a non resident of Australia for taxation purposes.

On XXXX you jointly purchased a residential property with your spouse, with equal ownership, at XXXX.

You were a resident for tax purposes when you purchased the above property and until the 30 June XXXX.

The property was sold on XXXX.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section115-105

Income Tax Assessment Act 1997 Section115-115

Income Tax Assessment Act 1997 Subsection115-115(2)

Income Tax Assessment Act 1997 Section 118-10

Income Tax Assessment Act 1997 Section768-915

Income Tax Assessment Act 1997 Section855-15

Income Tax Assessment Act 1997 Section 855-20

Income Tax Assessment Act 1997 Division 855

Income Tax Assessment Act 1997 Subsection995-1(1)

Reasons for decision

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

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

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

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

Based on the facts provided, you are classified as a temporary resident a from when you migrated to Australia. In your case you hold a 444 temporary resident visa.

A foreign resident or temporary resident is liable to capital gains tax (CGT) when they dispose of taxable Australian property. Taxable Australian property includes real property located in Australia (sections 855-15 and 855-20 ITAA 1997).

Section 118-110 of the ITAA 1997 outlines the rules regarding Capital Gains Tax (CGT) main residence exemptions.

Section 768-915 of the TAA 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:

o   the non-portfolio interest test; and

o   the principal asset test.

Discount capital gains

As per section 115-105, the object of this section (with 115-115) is to adjust the discount percentage so as to deny you a discount to the extent that you accrued a capital gain while a foreign resident or temporary resident.

As per note 1 in subsection 115-115(2) - the percentage will be 0% if you were a foreign resident or temporary resident during all of the discount testing period.

You can only apply the discount to part of your capital gain if you acquired the asset on or before 8 May 2012 and you had a period of Australian residency after 8 May 2012.

In your case you acquired the property after 8 May 2012 and was a temporary resident for the entire period the asset was held, therefore, the discount percentage will be zero.