Private ruling: Sale of a foreign property
Date of advice: 7 December 2017
Published: April 2018
Ruling period: Financial year ended 30 June 201C
Date scheme commenced: 1 July 201B

Ruling: Question and Answer | Will the main residence exemption apply to the disposal of your foreign real property? | No

Relevant facts and circumstances: You purchased an unfinished apartment in a foreign location. Subsequently you became a resident of Australia for taxation purposes. You came to Australia on a permanent residence visa. You never lived in the apartment as it was not built by the time you migrated to Australia. Neither your spouse nor you own any other property. You never used the property to produce assessable income. You ceased to have legal ownership of the property in the financial year ended 30 June 201B.

Relevant legislative provisions: Section 109-5 of the Income Tax Assessment Act 1997 | Section 118-135 of the Income Tax Assessment Act 1997 | Section 885-45 of the Income Tax Assessment Act 1997 | Section 855-50 of the Income Tax Assessment Act 1997

Reasons for decision: Detailed Reasoning - Becoming a resident: As a general rule, you acquire a CGT asset when you become its owner (subsection 109-5(1) of the Income Tax Assessment Act 1997 ( ITAA 1997). If a non-resident individual becomes an Australian resident, a special acquisition rule applies in respect of certain CGT assets owned by the individual just before becoming a resident (section 855-45 of the ITAA 1997). The special acquisition rule is that the taxpayer is treated as having acquired the asset at the time of becoming a resident (subsection 855-45(3) of the ITAA 1997). | Detailed Reasoning - Moving into a new dwelling: If a dwelling becomes a taxpayer's main residence by the time it was first practicable for the taxpayer to move into it after it was acquired, the dwelling is treated as the taxpayer's main residence from when it was acquired until it actually became the taxpayer's main residence (section 118-135 of the ITAA 1997). As the apartment was not complete by the time you emigrated from the foreign location, you never occupied the property and therefore the rule which extends the period of main residence will not apply. | Detailed Reasoning - Your ownership interest: An "ownership interest" in land is defined as a legal or equitable interest in it or a right to occupy the land. An ownership interest in a dwelling, other than a flat or a home unit, is a legal or equitable interest in the land on which it is erected, or a licence or right to occupy it. In the case of a flat or a unit, an ownership interest is defined as a legal or equitable interest in a stratum unit, or a licence or right to occupy it, or a share in a company that owns a legal or equitable interest in the land on which the flat or home unit is erected and that gives the taxpayer a right to occupy it. For land or a dwelling acquired under a contract, an individual has an ownership interest from the time she or he obtains legal ownership of it. The ownership interest continues until legal ownership terminates. | Detailed Reasoning - CGT considerations: When you became an Australian resident for tax purposes in May 201A you became a resident for CGT purposes. Therefore the following cost base and acquisition rules apply in respect of your CGT asset which you owned just before becoming a resident (section 855-45 ; 855-50 of the ITAA 1997): ● the first element of the cost base and reduced cost base of your asset at the time you became a resident which was the market value at that time; and ● as you are treated as having acquired the asset at the time of becoming a resident, you are eligible for the CGT discount as the asset was held for at least 12 months from the time of becoming a resident, even if it was owned before that time.