CGT on shares purchased as resident and held while non-resident

This is specifically for shares held under an individual persons name, not property, and not for companies where you own 10% or more. ie run of the mill orderinary individuals.

As I understand it, you have 2 options when ceasing to be a resident
1. Elect to pay CGT then
2. Elect to pay CGT when you sell the shares at a later date

It was my assumption that with option 2, the CGT would be calculated only be until the date you became a non-resident, and any CGT accrued after that would not be owed.

But I've read a comment elsewhere saying that under option 2, by electing to do this, you owe CGT on any gains right up until the time you sell.

If you elect to defer the gain until you dispose of the shares then you’ll be taxed in Australia on the whole of the gain (ie including the period you were a non-resident). Section 104-165(3) of the ITAA1997 deems the shares you have deferred the gain on to be Taxable Australia Property; the consequence is that non-residents are subject to tax on their Taxable Australian property so that the shares stay within the Australian tax net.

Non-residents are not subject to capital gains tax in Australia in respect of shares that are not taxable Australian property (ie shares in companies that are not land rich). The issue here is that the shares are deemed to be TAP notwithstanding the underlying companies are not land rich.​

Just wanting to hear if anyone has dealt with or looked into it and confirm, deny, or offer any comments on it.

Thank you

 

The legislation should be looked at
INCOME TAX ASSESSMENT ACT 1997 - SECT 104.165 Exception for individuals

I think you were wrong in your assumption.

 

I always recommend taxpayers who cease to be resident seek tax advice prior to departure. This would have addressed the CGT option/s. The election option cant be backdated later and may expire with time !! So its often a sound strategy to sell prior to departure or to at least realise the gain / loss for tax purposes at the time of departure to avoid the shares being taxable Australian property throughout the period of non-residency.

 

CGT Event I1 arises when a resident ceases to be a resident. INCOME TAX ASSESSMENT ACT 1997 - SECT 104.160 Individual or company stops being an Australian resident: CGT event I1

The individual will make a capital gain/loss on the shares at this time and will need to include this capital gain/loss in their Australian tax return. If the value of the shares increase from the time they cease to be an Australian resident until the time they sell the shares, the individual should not be taxed on this increase in Australia if he is a non-resident at the time he sells the shares.

The individual can choose to disregard the capital gain/loss made under CGT event I1.INCOME TAX ASSESSMENT ACT 1997 - SECT 104.165 Exception for individuals

The choice must be made by the time the income tax return for the relevant year is lodged or within a further time allowed by the Commissioner (subsection 103-25(1) of the ITAA 1997).

Subsection 103-25(2) of the ITAA 1997 provides that the way you prepare your income tax returns is sufficient evidence of the making of the choice.

If you didn't include a capital gain or capital loss in your income tax return in the year you became non resident then it would be evident by your income tax return that you have made a choice for these shares to become taxable Australian property.

If this choice is made the shares will become taxable Australian property until the earlier of the individual selling the shares and becoming an Australian tax resident again. This will mean that if the individual sells the shares while they are a non resident and makes a capital gain, the entire capital gain will be included in their Australian tax return (ie, it is not apportioned based on period of non-residency).

 

Thanks Terry, Paul, and Mike.

It's very misleading on the ATO site if you ask me. It states that once you cease to be an Australian resident, anything that is not taxable Australian property is considered disposed of, which to any lay person (or even any professional who is not an accountant) would sound like it would apply to shares.

But under that rule, not mentioned there that I can see, if you owned the shares while a resident, they simply consider it as taxable Australian property instead of as shares, essentially nullifying the entire statement.

That information is worse than just not even putting that section up on that web page in the first place.

Anyway, glad to know it now and to be able to mention it to anyone I come across who is in that situation. Thanks.

 

You should not rely on secondary sources, even from the ATO. The only thing that counts is the law.

 

Warning. The ATO doesnt provide tax advice !! Its website provide basic information which isnt intended to mislead or guide taxpayers on every aspect of tax law. In many cases it over simplifies and as a consequence can result in false assumptions or decisons that are not fully informed. eg

The main residence CGT exemption is one great example...What does "main" residence mean ??? - There are two important limbs to those simple words. How does a taxpayer elect to use it ? Is it invalid for example ? The ATO website is very general in its information. Yet as practitioners I can refer to cases, rulings and decisions that all impact this position. I may refer to the Master Tax Guide for example and it runs to 11 pages of detail. I could refer to CGT publications such as "Coopers" (a great guy) for even more detail. The website doesnt mention many of these issues eg what type of residence can it apply to ? Case 26/93, ownership interests, the new construction rule and its impact with overlapping other property, spouses with a different main residence and The Couch decision and more.

I think of the ATO like a pharmacy. They take care and can help you buy the right product but you cant ask for medical advice and would be mad to rely on a pharmacist for diagnosis and treatment