ATO ID 2009/88: Capital Gains Tax: temporary residents - temporary resident acting in a trustee capacity
Date of decision: 31 July 2009
Year of income: Year ended 30 June 2009
Business line: Private Groups and High Wealth Individuals

Issue
Does section 768-915 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to disregard a capital gain or capital loss that an individual makes from a capital gains tax (CGT) event in their capacity as trustee of a trust if the individual is a temporary resident just before, or at the time of, the CGT event?

Decision
No. A capital gain or capital loss that an individual makes in their capacity as trustee of a trust is not disregarded under section 768-915 of the ITAA 1997 as it is only capital gains or capital losses that an individual makes in their personal capacity that are disregarded under that provision.

Facts
A foreign resident individual comes to Australia and becomes a temporary resident within the meaning of that term in subsection 995-1(1) of the ITAA 1997. The individual creates a trust of which the individual is the trustee. The trust is a resident trust for CGT purposes. The trustee acquires some shares in an Australian company that are non-taxable Australian property (non-TAP). The trustee later disposes of the shares and makes a capital gain under CGT event A1. The individual was still a temporary resident at the time of the CGT event.

Reasons for decision
Summary: Broadly, section 768-915 of the ITAA 1997 allows a taxpayer to disregard a capital gain or capital loss they make from a CGT event if they are a temporary resident when, or immediately before, the CGT event happens provided the capital gain or capital loss would have been disregarded under Division 855 of the ITAA 1997 if the taxpayer were a foreign resident at that time. A capital gain or capital loss that a taxpayer makes from a CGT event happening in relation to non-TAP is disregarded under subsection 855-10(1) of the ITAA 1997 if the taxpayer is a foreign resident, or the trustee of a foreign trust for CGT purposes, just before the CGT event happens. By referring to both taxpayers who are a foreign resident and taxpayers who are the trustee of a foreign trust, subsection 855-10(1) of the ITAA 1997 provides separately for capital gains or capital losses that a particular taxpayer makes in their personal capacity and capital gains or capital losses that the same taxpayer makes in their capacity as trustee of a trust. In contrast, paragraph 768-915(b) of the ITAA 1997 only makes reference to a taxpayer who is a foreign resident. This suggests strongly that it is only capital gains or capital losses that a temporary resident makes in their personal capacity that can be disregarded under that provision. Had it been intended to also disregard capital gains or capital losses that the temporary resident makes in their capacity as trustee of a trust, then the provision would also have made reference to a taxpayer who is the trustee of a foreign trust. For this reason, it is considered that a capital gain or capital loss that an individual makes in their capacity as trustee of a trust is not disregarded under section 768-915 of the ITAA 1997 as only capital gains or capital losses that an individual makes in their personal capacity can be disregarded under that provision.

Legislative references: Income Tax Assessment Act 1997 section 768-915 paragraph 768-915(b) Division 855 subsection 855-10(1) subsection 995-1(1)
Subject references: Capital gains tax CGT exemptions Temporary resident