Edited version of private advice

Authorisation Number: 1052376586251

Date of advice: 26 March 2025

Ruling

Subject: Capital gains tax

Question 1

Can the market value of my overseas company as of the date that I became an Australian tax resident in September 20XX, be used as the cost base for capital gains tax (CGT) purposes?

Answer 1

Yes. Section 855-45 Income Tax Assessment Act 1997 (ITAA 1997)states that when you become an Australian resident for tax purposes (except when you are also a temporary resident after this occurs), you are taken to have acquired your CGT assets at the same time, for their market value at that time. This is sometimes called 'deemed acquisition'.

Question 2

Is any portion of the capital gain attributable to the period after I became an Australian tax resident?

Answer 2

Yes, a portion of the capital gain can be attributable to the period after you became an Australian tax resident. When you become an Australian resident for tax purposes, you are generally deemed to have acquired your CGT assets at their market value at that time. This means any capital gain accrued after this point would be attributable to your period of Australian residency.

Question 3

Is the majority of the capital gain that is attributable to pre-residency ownership of the asset, subject to capital gains tax in Australia for the director as an individual?

Answer 3

No, the majority of the capital gain which is attributable to the period before you became an Australian tax resident is generally not subject to Australian CGT. Therefore, only the capital gain accrued after you became a resident would be subject to CGT in Australia.

Question 4

Am I eligible for the XX% CGT discount on sale of the company which I have been director and sole shareholder of for X years in Country A and for more than X months in Australia?

Answer 4

Yes. Section 115-25 ITAA 1997 states that you are eligible for the XX% CGT discount on sale of the company which is applicable to the portion of the capital gain which accrued while you were an Australian resident as you have held the asset for at least X months in Australia before sale.

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commenced on:

1 September 20XX

Relevant facts and circumstances

You are director and sole shareholder of a company, XXX Ltd, which was formed in 20XX in Country A.

Your company began trading in 20XX.

The company provided information technology consultancy services as well as other professional, scientific and technical services.

You moved to Australia and became a permanent resident in 20XX.

You plan to liquidate/sell your company after XX 20XX and receive cash proceeds from the sale of his shareholding

You will report the entire liquidation/sale amount in your Country A tax assessment for the 20XX to 20XX taxation year.

A small portion of those assets which accumulated after September 20XX will be subject to Australian CGT that you will pay as an individual.

More than XX% of the company's assets and reserves were accumulated before you became an Australian resident in September 20XX.

Your accountant advised you to obtain a professional evaluation of your company from a qualified and independent valuator based in Country A:

•                the first valuation as at XX 20XX, when you became an Australian tax resident

•                the second valuation as of the date of liquidation/sale in XX 20XX

The gain attributable to you after becoming an Australian tax resident will be subject to Australian capital gains tax to you as an individual and will be reported in your income tax return in the 20XX tax year.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 115-25

Income Tax Assessment Act 1997 section 855-45