Private ruling: Capital gains tax
Published: June 2015
Ruling period: 1 July 2013 to 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you temporary residents of Australia for taxation purposes? | A1: Yes. | Q2: Is the capital gain from the sale of your overseas property included in your assessable income in Australia? | A2: No.

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. You are not an Australian citizen. Nor is your spouse. Both you and your spouse are citizens of another country. You and your spouse are living in Australia under temporary visas. You owned a rental property in another country. You sold that property and made a capital gain.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5. | Income Tax Assessment Act 1997 section 6-10. | Income Tax Assessment Act 1997 section 6-15. | Income Tax Assessment Act 1997 section 10-5. | Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 section 768-910. | Income Tax Assessment Act 1997 section 768-915. | Income Tax Assessment Act 1997 section 855-15. | Income Tax Assessment Act 1997 subsection 995-1(1).

Reasons for decision: Detailed Reasoning - Assessable income and residency for taxation purposes - general: As a general rule, the assessable income in Australia of an individual who is a resident of Australia for taxation purposes will include all the ordinary and statutory income they earn from all sources, in and out of Australia. Capital gains are a form of statutory income. Although an individual may be a resident of Australia for taxation purposes he or she may also be a temporary resident for taxation purposes at the same time. Where this is the case, the temporary resident provisions of Australia's tax law may operate to exclude certain foreign source income of the individual from being assessable in Australia. | Detailed Reasoning - Temporary residency for taxation purposes: An individual who is a resident of Australia for taxation purposes will also be a temporary resident for taxation purposes if: • they hold a temporary visa granted under the Migration Act 1958 , and • they are not an Australian resident within the meaning of the Social Security Act 1991, and • they do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991. The Social Security Act 1991 defines an Australian resident as a person who resides in Australia and is an Australian citizen, the holder of a permanent visa, or a protected special category visa holder who was in Australia on or before 26 February 2001. Only a New Zealand citizen with a valid New Zealand passport can be issued a protected special category visa. Although you are a resident of Australia for taxation purposes, you are also a temporary resident of Australia for taxation purposes because: • you hold a temporary visa issued under the Migration Act 1958, and • neither you nor your spouse are Australian residents within the meaning of the Social Security Act 1991 . | Detailed Reasoning - Temporary residents and assessable income: Subdivision 768-R of the ITAA 1997 provides an exemption for most foreign income derived by individuals who are temporary residents of Australia for taxation purposes. This exemption is explained in part by the following extract from Paragraph 1.23 of the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 : This Bill makes ordinary income derived from a foreign source during the period the taxpayer is a temporary resident non-assessable non-exempt income. This measure also applies to all statutory income that has a source other than Australia……… on which the taxpayer would otherwise be taxed. Income that is non-assessable, non-exempt income is not assessable income under the provisions of subsection 6-15(3) of the ITAA 1997. Section 768-910 of the ITAA 1997 provides that ordinary and statutory income (with the exception of net capital gains) derived by a temporary resident from sources outside Australia is non-assessable, non-exempt income. Capital gains (or losses) made by temporary residents are specifically dealt with by section 768-915 of the ITAA 1997. In simple terms, the effect of section 768-915 of the ITAA 1997 is that temporary residents are subject to the same capital gains tax (CGT) rules as foreign residents. This means that if you are a temporary resident, you can disregard (and therefore exclude from your assessable income in Australia) any gain or loss made from a CGT event happening to an asset that is not taxable Australian property. Taxable Australian property is defined in section 855-15 of the ITAA 1997. Residential property located outside of Australia is not included in the definition of taxable Australian property. | Detailed Reasoning - Conclusion: You are a temporary resident of Australia for taxation purposes and your overseas property property was not taxable Australian property. Therefore your assessable income in Australia does not include any capital gain made from the sale of your overseas property.