Edited version of private advice

Authorisation Number: 1052277738573

Date of advice: 25 July 2024

Ruling

Subject: Temporary resident - foreign sourced income

Question 1

Are you a temporary resident of Australia for tax purposes?

Answer

Yes.

Question 2

Can you disregard any capital gain or loss on the sale of your shares?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You arrived in Australia in XXXX.

You have left Australia only for short periods since arriving several years ago.

You have worked full-time in Australia since XXXX.

In XXXX, you were granted a Subclass 482 visa (temporary skills shortage visa).

You do not have a spouse.

As part of your salary package, you receive shares in your employer's parent company.

These shares are captured under the Employee Share Scheme (ESS) rules and have been shown as income in your tax returns as they vest to you.

You will dispose of some of your shares during the income year ending 30 June 20XX.

You will remain in Australia on the Subclass 482 visa for the income year ending 30 June 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 768-915

Income Tax Assessment Act 1997 section 855-10

Income Tax Assessment Act 1997 section 855-15

Income Tax Assessment Act 1997 section 855-20

Income Tax Assessment Act 1997 section 855-25

Income Tax Assessment Act 1997 section 855-30

Income Tax Assessment Act 1997 subsection 995(1)-1

Reasons for decision

Question 1

Summary

You are a temporary resident of Australia in accordance with section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

Subsection 995-1(1) of the ITAA 1997 provides that you are a temporary resident of Australia if you meet the following conditions:

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

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

(c) Your spouse is not an Australian resident within the meaning of the Social Security Act 1991.

However, you are not a temporary resident if you have been an Australian resident (within the meaning of the ITAA 1997), and any of paragraphs (a), (b) and (c) are not satisfied, at any time after the commencement of this definition.

Application to your circumstances

You were issued with a temporary skills shortage visa. This visa is granted under the Migration Act 1958 and therefore meets the condition in paragraph a of the temporary resident definition.

You are not an Australian citizen or the holder of a permanent visa or a special category visa(SCV) holder who is a protected SCV holder. This means that you are not an Australian resident within the meaning of the Social Security Act 1991. Therefore, you meet the conditions in paragraph b of the temporary resident definition.

You do not have a spouse so paragraph c of the definition is not relevant to your circumstances. Therefore, you are a temporary resident.

Question 2

Summary

You can disregard any capital gain or loss on the disposal of your shares.

Detailed reasoning

Subsection 768-915 (1) of the ITAA 1997 provides that a capital gain or capital loss that you make from a CGT event is disregarded if:

a)    You are a temporary resident when, or immediately before 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 would have been disregarded under Division 855, if you were a foreign resident when, or immediately before the CGT event happen

Subsection 855-10(1) of the ITAA 1997 provides that you can disregard a capital gain or capital loss from a CGT event if:

a)    You are a foreign resident, or the trustee of a foreign trust for CGT purposes, just before the CGT

event happens; and

b)    The CGT event happens in relation to a CGT asset that is not taxable Australian property

Section 855-15 of the ITAA 1997 sets out the 5 categories of CGT assets that are taxable Australian property in a table.

Item 1 in the table at section 855-15 is taxable Australian property as defined in section 855-20 of the ITAA 1997. Section 855-20 of the ITAA 1997 states that taxable Australian real property is

(a)  Real property situated in Australia (including a lease of land, if the land is situated in Australia); or

(b)  A mining, quarrying or prospecting right (to the extent that the right is not real property), if the minerals, petroleum or quarry materials are situated in Australia

Item 2 in the table at section 855-15 is a CGT asset that is an indirect real property interest as defined in section 855-25 of the ITAA 1997 and is not covered by item 5 in the table at section 855-15 of the ITAA 1997.

Section 855-25 of the ITAA 1997 defines indirect Australian real property interests as an entity(the holding entity) holding a membership in another entity (the test entity) that passes the non-portfolio interest test in section 960-195 of the ITAA 1997. The interest must pass the test at the relevant time or throughout a 12 month period that began no earlier than 24 months before that time and ended no later than that time. The interest must also pass the principal interest test in section 855-30 of the ITAA 1997 at that time.

A taxpayer's interest will pass the non-portfolio interest test if they hold 10% or more of the company at the time of the share disposal, or throughout a 12 month period in the 24 months before that time and ending no later than that time.

A taxpayer's interest will pass the principal interest test if the sum of the market values of the test entity's assets that are taxable Australian real property exceeds the sum of the market values of its assets that are not taxable Australian real property.

Item 3 is a CGT asset that you have used at any time in carrying on a business through if you are a resident in a country that has entered into an international tax agreement with Australia containing a permanent establishment article - a permanent establishment (within the meaning of the relevant international tax agreement) in Australia; or otherwise a permanent establishment in Australia that is not covered by item 1,2 or 5 of the table

Item 4 is an option or right to acquire a CGT asset covered by item 1,2 or 3 of the table at section 855-25 of the ITAA 1997.

Item 5 is a CGT asset that is covered by subsection 104-165(3) of the ITAA 1997 (choosing to disregard a gain or loss on ceasing to be an Australian resident).

Application to your circumstances

The shares you will dispose of do not meet the definition of taxable Australian real property in item 1 of the table in section 855-15 of the ITAA 1997.

The shares you will dispose of do not meet the definition of indirect Australian real property interests in item 2 of the table as you do not hold more than 10% of the test entity's assets and you do not meet the principal assets test.

Item 3 of the table is not relevant as you are not carrying on a business.

Item 4 of the table is not relevant as you did not acquire an option or right to acquire a CGT asset covered by

Item 1,2 or 3 of the table in section 855-15 of the ITAA 1997.

Item 5 is not relevant as you will not dispose of a CGT asset covered by subsection 104-165(3) of the ITAA 1997.