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Will the first element of the cost base and reduced cost base of your inherited interests in the Property be Person X's cost base of the interests on the date they passed away under subsection 128-15(4) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. Person X held two interests in the Property just prior to their passing that were acquired at different times, with each interest having a different first element of their respective cost base and reduced cost base. This ruling applies for the following period : Year ending 30 June 20XX The scheme commenced on: 1 July 20XX

After 20 September 19YY your relatives, Person X, Person Y and Person Z, purchased a property as joint tenants that was located in an overseas country, being Country A. After some years Person Y passed away and their interest in the Property was transferred in equal shares to Person X and Person Z as the surviving joint tenants with each of them holding an equal interest in the Property. The Property was your principal place of residence until several years after Person Y had passed, when it commenced being used for rental purposes from that time onwards. Some years after the Property had commenced being rented, you and Person X moved to Australia, with Person X arriving on a special category visa as a Country A citizen. At that time Person X and Person Z were listed on the title of the Property. Some years later you purchased Person Z's interest in the Property, with you becoming an equal owner of the Property with Person X. Several years after you arrived in Australia you became an Australian citizen. Some years later Person X passed away and you became the sole owner of the Property after inheriting their interest in the Property.

Person X had not become a permanent resident or citizen of Australia prior to their passing. You permanently left Australia, and you are choosing to include the capital gain or loss in relation to your inherited interest in the Property in your income tax return for the ruling period.

Income Tax Assessment Act 1997 section 102-20 Income Tax Assessment Act 1997 104-20 Income Tax Assessment Act 1997 section 108-5 Income Tax Assessment Act 1997 subsection 128-15(2) Income Tax Assessment Act 1997 subsection 128-15(4) Income Tax Assessment Act 1997 subsection 128-50(2) Income Tax Assessment Act 1997 subsection 128-50(3) Income Tax Assessment Act 1997 section 768-950 Income Tax Assessment Act 1997 subsection 768-955(1) Income Tax Assessment Act 1997 subsection 768-955(2) Income Tax Assessment Act 1997 subsection 768-955(3) Income Tax Assessment Act 1997 subsection 855-45(1) Income Tax Assessment Act 1997 subsection 855-45(2) Income Tax Assessment Act 1997 subsection 995-1(1)

Generally, when a tax resident of Australia inherits an asset, or an interest in an asset, as a beneficiary of a deceased estate there are several sections of the legislation involved in deciding what the first element of their cost base and reduced cost base will be for the inherited asset. We have considered the following when determining the first element of the cost base and reduced cost base of your inherited interest in the Property. Inherited interest in a property Where a CGT asset passes to a beneficiary of a deceased estate, the beneficiary, is taken to have acquired the asset on the day the deceased died under subsection 128-15(2) of the ITAA 1997. When a beneficiary or legal personal representative (LPR) of the taxpayer's estate acquires an asset as a result of the taxpayer's death, the first element of the cost base or reduced cost base of the asset in the hands of the beneficiary or LPR are modified under subsection 128-15(4) of the ITAA 1997 in the table as follows, with 'you' being the deceased person: Table 1:Cost base elements of CGT assets Item For this kind of CGT asset The first element of the cost base is: The first element of the reduced cost base is: 1

One you acquired on or after 20 September 1985, except one covered by item 2, 3, 3A or 3B. the cost base of the asset on the day you died the reduced cost base of the asset on the day you died 2 One that was trading stock in your hands just before you died the amount worked out under section 70-105 the amount worked out under section 70-105 3 A dwelling that was you main residence just before you died, and was then not being used for the purpose of producing assessable income the market value of the dwelling on the day you died the market value of the dwelling on the day you died 3A If you were a foreign resident just before you died - an asset that was not taxable Australian property just before you died, except one covered by item 2 the market value of the asset on the day you died the market value of the asset on the day you died 3B One that passes to a trustee of a special disability trust the market value of the asset on the day you died the market value of the asset on the day you died 4 One you acquired before 20 September 1985 the market value of the asset on the day you died the market value of the asset on the day you died

Generally, temporary residents are treated the same as foreign residents for taxation purposes. However, table item 3A as provided above does not extend the modification rules to all temporary residents. Temporary residents who are also foreign residents can still use item 3A, but temporary residents who are also Australian residents will not be captured by this item. If the latter, then table item 1 operates instead so that the first element of the cost base and reduced cost base of the CGT asset is taken to be equal to the deceased's cost base on the date of death, in the hands of the legal personal representative, or beneficiary of the temporary resident. Becoming an Australian resident for tax purposes There are rules relevant to each CGT asset you owned just before you became an Australian resident, except an asset that is taxable Australian property or a CGT asset you acquired prior to 20 September 1985 under subsection 855-45(1) of the ITAA 1997. The first element of the cost base and reduced cost base of the asst at the time you became an Australian resident is its market value at that time under subsection 855-45(2) of the ITAA 1997).

However, section 768- 950 of the ITAA 1997 states that section 855-45 of the ITAA 1997 does not apply to your becoming an Australian resident if you are a temporary resident immediately after you become an Australian resident. There are special rules that apply to each CGT asset you owned just prior to ceasing to be a temporary resident if you are a temporary resident, who ceases to be a temporary resident but remains an Australian resident, and the CGT asset is not taxable Australian property or was acquired by you prior to 20 September 19YY (subsection 768-955(1) of the ITAA 1997). In that case, the first element of the CGT asset's cost base and reduced cost base as its market value at that time under subsection 768-955(2) of the ITAA 1997 and you are taken to have acquired the CGT assets at the time you ceased to be a temporary resident under subsection 768-955(3) of the ITAA 1997. Resident of Australia for taxation purposes Section 995-1 of the ITAA 1997 defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms 'resident' and 'resident of Australia', as applied to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes, with only one test needing to be met to be considered a resident of Australia. The tests are: •                the resides test (also referred to as the ordinary concepts test) •                the domicile test •                the 183-day test, and •                the Commonwealth superannuation fund test. Temporary resident of Australia for taxation purposes A person may be a temporary resident of Australia for taxation purposes irrespective of whether they are a resident or a non-resident under the normal tax rules. However, a person will not be a temporary resident if they are a resident under the separate tests laid down in the Social Security Act 1991 . Subsection 995-1(1) of the ITAA 1997 defines a temporary resident as: You are a temporary resident if: a)              you hold a temporary visa granted under the Migration Act 1958 b)              you are not an Australian resident within the meaning of the

Social Security Act 1991 ; and c)              your spouse is not an Australian resident within the meaning of the Social Security Act 1991 However, the definition excludes a person who, at any time after 6 April 2006, has been an Australian resident for tax purposes and for whom any of paras (a), (b) and (c) above are not satisfied. Holder of a temporary visa under Migration Act 1958 A temporary visa is defined in subsection 30(2) of the Migration Act 1958 . Section 30(2) states that a temporary visa is a visa to remain in Australia: (a) during a specified period (b) until a specified event happens; or (c) while the holder of the visa has a specified status. Australian resident within the meaning of the Social Security Act 1991 (SSA) Under subsection 7(2) of the SSA an Australian resident is a person who: a)              resides in Australia; and b)              is one of the following: i.                  an Australian citizen ii.                  the holder of a permanent visa iii.                  a special category visa holder who is a protected SCV holder. Joint tenants

A joint tenant's interest in an asset does not form part of their deceased estate and the rules in section 128-15 of the ITAA 1997 as provided above do not apply to determine the first element of the cost base or reduced cost base of the deceased's interests in the hands of the surviving joint tenant/s. Joint tenants hold equal interest in the assets. Under subsection 128-50(2) of the ITAA 1997 a surviving joint tenant is taken to have acquired the deceased joint tenant's interest in the asset at the date of the deceased's death. If there are two or more survivors, they are taken to have acquired that interest in equal shares. If the deceased acquired their interest in the jointly owned asset on or after 20 September 1985, the first element of the cost base or reduced cost base of the interest for each surviving joint tenant will be the cost base and reduced cost base of the interest of the individual who died (worked out on the day the individual died) divided by the number of survivors under subsection 128-50(3) of the ITAA 1997. Application to your situation

You inherited Person X's interest in the Property after you became a permanent resident and taxation resident of Australia. You ceased being an Australian resident during the ruling period and CGT event I1 has occurred under section 104-160 of the ITAA 1997. You are wishing to lodge your income tax return for the ruling period to record the capital gain or capital loss arising as a result of that CGT event occurring in relation to your inherited interest in the Property. We have taken the following into consideration when determining the first element of the cost base and reduced cost base of each of your inherited interests. For CGT purposes Person X is viewed as having two CGT assets in relation to their interest in the Property which they acquired as follows: •                Their original interest in the Property acquired as one of the joint tenants (the Original interest), with the other joint tenants being Person Y and Person Z. The first element of Person X's cost base and reduced cost base of the Original interest was the amount they originally paid to acquire their share of the Property; and

•                Surviving tenant interest acquired by Person X when Person Y passed away, as one of the surviving joint tenants, when they acquired half of Person Y's interest in the Property. The first element of Person X's cost base and reduced cost base for this interest is calculated as being Person Y's cost base at the time of their passing divided equally between the surviving joint tenants. As a resident beneficiary, you are taken to have acquired the interest in the Property you inherited from Person X on the date they passed away. For CGT purposes your inherited interest includes two CGT assets. From that point onwards the CGT provisions applied to you in relation to the inherited interest when a later CGT event occurred in relation to either/both of the CGT assets. The first element of your cost base and reduced cost base of each of the inherited CGT assets will be determined by applying the relevant legislation to the facts of your situation as follows.

Person X lived in Australia from the time they came to Australia with you until they passed away some years later. Person X was a resident of Australia for tax purposes. They were also a temporary resident during the period they were in Australia. Therefore, section 855-45 of the ITAA will not apply in relation to any CGT assets they held when they became an Australian resident in accordance with section 768-950 of the ITAA 1997 Accordingly, the market value of the interests Person X held in the Property on the date they became an Australian resident will not be used in relation to determining the first element of your cost base and reduced cost base for those interests. In accordance with the modification rules for the acquisition of inherited assets contained in the table at subsection 128-15(4) of the ITAA 1997, table item 1 will apply given that Person X had acquired their interests in the Property after 20 September 1985 and table items 2, 3, 3A or 3B do not apply. The first element of the cost base and reduced cost base of your interests in the Property will be Person X's cost base in relation to each respective interest on the date they passed away. Conclusion

The first element of the cost base and reduced cost base of your inherited interests in the Property will be as follows: Original interest The first element of your cost base and reduced cost base for this interest will be based on Person X's first element of their cost base and reduced cost base in relation to the original purchase of the Property because: •                Section 855-45 of the ITAA will not apply due to the operation of section 768- 950 of the ITAA 1997. Therefore, the market value of this interest when Person X moved to Australia cannot be used in relation to your cost base and reduced cost base for this interest. •                Person X was a temporary resident just prior to their passing and table item 3A in the table in subsection 128-15(4) of the ITAA 1997 will not apply. Therefore, the market value of the interest on the date Person X passed away cannot be used in relation to your cost base and reduced cost base for this interest; and

As the legislative provisions that allow the market value to be used are not applicable in your case, the first element of your cost base and reduced cost base for this interest will be Person X's cost base just prior to their passing using the first element of their cost base and reduced cost base, which is the amount they paid to originally purchase that interest in the Property. Surviving joint tenant interest In accordance with the reasons as provided above, the market value of this interest cannot be used in relation to the first element of your cost base and reduced cost base for this interest. The first element of your cost base and reduced cost base for this interest will be Person X's cost base for this interest when they passed away. Their cost base and reduced cost base of this interest when they passed away will be based on half of the amount Person Y originally paid to acquire the Property due to their cost base being apportioned equally between the surviving joint tenants when they passed away.

Note: You acquired your other interest in the Property when you purchased it from Person Z. You ceased being a temporary resident and became an Australian some years after you came to Australia. The first element of your cost base and reduced cost base of this interest will be its market value at the time you ceased to be a temporary resident with the CGT provisions applying to the interest as if it had been acquired at that time under section 768-955 of the ITAA 1997.