Private ruling: Capital gains tax
Date of advice: 13 June 2016
Published: August 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is the first element of the cost base of the property its market value on the date you arrived in Australia on a 457 visa? | A1: No. | Q2: Can the Commissioner exercise a discretion to allow you to use the market value of the property on the date you arrived in Australia on a 457 visa as the first element of its cost base? | A2: No.

Relevant facts and circumstances: You purchased property overseas. You later arrived in Australia on a 457 visa. You became a permanent resident of Australia on a later date. You advise that the value of the property (in Australian dollars) has fluctuated over this period. By the time you became a permanent resident of Australia the value of the property had dropped was much lower than what you originally purchased the property for. You eventually sold the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 855-45 | Income Tax Assessment Act 1997 - Section 768-950 | Income Tax Assessment Act 1997 - Section 768-955

Reasons for decision: Summary: Special rules apply to determine the first element of the cost base of capital gains tax (CGT) assets located overseas that are owned by individuals who come to Australian and become Australian residents for taxation purposes. As a general rule, the first element of the cost base of a CGT asset that is held outside of Australia by a person who comes to Australia and becomes an Australian resident for taxation purposes is the market value of the asset on the day they become an Australian resident for tax purposes (section 855-45 of the Income Tax Assessment Act 1997 (ITAA 1997)). However, this rule does not apply to individuals who come to Australia and become only temporary residents of Australia for taxation purposes (section 768-950 of the ITAA 1997). This is because temporary residents are only subject to CGT on CGT events that happen to taxable Australian property. Notwithstanding this, if the individual remains a resident for taxation purposes and later obtains permanent residency in Australia, then those assets which were previously excluded from the Australian CGT rules because they were not taxable Australian property must be brought within the ambit of those rules. In this case, the first element of the cost base of their overseas CGT assets is the market value of those assets on the day the person becomes a permanent resident of Australia (section 768-955 of the ITAA 1997). | Detailed Reasoning - Application to your circumstances: You arrived in Australia on a temporary 457 visas. You did not obtain permanent residency until a later date. For CGT purposes, the first element of the cost base of the property you purchased overseas will be its market value on the day you obtained your permanent residency. The taxation legislation does not contain any provisions that grant the Commissioner of Taxation discretion to depart from the above requirements. While we appreciate your situation, there is no other discretion available to the Commissioner in the circumstances you describe.