Private ruling: Assessable income and target foreign income
Published: May 2015
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Questions and answers: | 1. Is the income that you receive from your overseas rental property assessable in Australia? | No. | 2. Are you entitled to disregard any capital gain or loss that results from the disposal of your overseas property? | Yes. | 3. Are you required to include any rental income that is derived from your overseas property as target foreign income in your income tax return? | Yes. | 4. Are you required to include any capital gain or loss that results from the disposal of your overseas property as target foreign income in your income tax return? | Yes. | 5. If you were granted a permanent resident visa how is the cost base calculated? | Decline to rule.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are a citizen of country Y. You reside in Australia as temporary resident on a non-protected special category visa. You own a property in country Y that is deriving rental income. You intend to dispose of your country Y property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 768R | Income Tax Assessment Act 1997 Section 6-5(2) | Income Tax Assessment Act 1997 Section 6-10

Reasons for decision: Detailed Reasoning - Assessable income: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Section 6-10 of the ITAA 1997, provides that the assessable income of a resident taxpayer also includes amounts that are not ordinary. Amounts that are not ordinary income, but included in your assessable income by provisions about assessable income, are called statutory income. Income derived from a rental property is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. Capital gains derived from the disposal of property is statutory income for the purposes of section 6-10 of the ITAA 1997. Subdivision 768-R of the ITAA 1997, provides for an exemption from income tax in Australia from 1 July 2006 for most foreign income derived by residents of Australia who also qualify as temporary residents. In your case, you are a temporary resident. Therefore subdivision 768-R of the ITAA 1997 will apply to exempt any rental income that you receive from your country Y property or capital gain that you derive from its disposal from being assessable in Australia under section 6-5 or 6-10 of the ITAA 1997. | Detailed Reasoning - Target foreign income: We use income tests to work out whether you: • can claim certain tax offsets and the amount you are entitled to receive • can receive some government benefits or concessions • are entitled to a rebate for your private health insurance • must pay Medicare levy surcharge or have a HELP or SFSS repayment liability • must pay tax We may also pass this information to other government agencies, such as the Department of Human Services, to ensure you are receiving your correct entitlement to government benefits. It will also be used to determine any child support payments. Target foreign income is: • any income earned, derived or received from sources outside Australia • a periodical payment by way of gifts or allowances from a source outside Australia • a periodical benefit by way of gifts or allowances from a source outside Australia provided that the amount has neither been included in your taxable income, nor received in the form of a fringe benefit. Target foreign income is reported in the income tests section at label IT4 on your income tax return. In your case, the rental income that you have received from your country Y property and any capital gain that is derived from its disposal is target foreign income. This is because it is income that is earned, derived or received from sources outside Australia and has not been included in your taxable income, nor received in the form of a fringe benefit. Therefore, the rental income that you receive from your country Y property and any capital gain that is derived from its disposal must be reported at label IT4 of your income tax return. | Detailed Reasoning - Question 5: The Commissioner has declined to rule. Subsection 359-35(2) of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that a private ruling does not have to be given if making the ruling would prejudice or unduly restrict the administration of a taxation law. This includes where the scheme, to which the application relates is not seriously contemplated or hypothetical. Based on the facts provided by you, the scheme is hypothetical. You have not indicated whether you intend to become a permanent resident or not. Therefore the advice you have requested with regards to the cost base of your country Y property is tax planning advice that would depend on unknown facts and future events. Accordingly, this question for the purposes of Division 359 of Schedule 1 to the TAA has been declined.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.