CGT: non-resident becomes resident - assets in respect of which choice was made to treat as having the necessary connection with Australia

Is the acquisition date of CGT assets, in respect of which a choice was made under subsection 104-165(2) of the Income Tax Assessment Act 1997 (ITAA 1997) when the taxpayer became a non-resident of Australia, determined under Subdivision 109-A of the ITAA 1997 if the taxpayer returns to Australia and becomes a resident again?

Yes. The acquisition date of the CGT assets is determined under Subdivision 109-A of the ITAA 1997 and not section 136-40.

The taxpayer is an Australian citizen. Several years ago the taxpayer ceased to be a resident of Australia for taxation purposes.

At the time of becoming a non-resident, the taxpayer owned a number of assets in respect of which a choice was made under subsection 104-165(2) of the ITAA 1997 to treat the assets as having the necessary connection with Australia.

The taxpayer will be returning to Australia to become a permanent resident again in the near future. The taxpayer still owns the assets.

As a general rule, you acquire a CGT asset when you become its owner (subsection 109-5(1) of the ITAA 1997). More specific rules are set out in subsection 109-5(2) of the ITAA 1997 for CGT assets acquired as a result of a CGT event happening or in section 109-10 of the ITAA 1997 when assets are acquired without a CGT event happening.

If a non-resident individual becomes an Australian resident, a special acquisition rule applies in respect of certain CGT assets owned by the individual just before becoming a resident (section 136-40 of the ITAA 1997). The special acquisition rule is that the taxpayer is treated as having acquired the asset at the time of becoming a resident (subsection 136-40(3) of the ITAA 1997).

However, the rule in section 136-40 of the ITAA 1997 does not apply to assets that have the necessary connection with Australia or assets that were acquired before 20 September 1985 (paragraph 136-40(1)(a) of the ITAA 1997).

When the taxpayer became a non-resident of Australia, a choice was made under subsections 104-165(2) of the ITAA 1997 in respect of a number of assets held at that time. As a result of that choice, those assets are treated as assets having the necessary connection with Australia - subsection 104-165(3) of the ITAA 1997. Therefore, the acquisition rule in section 136-40 of the ITAA 1997 will not apply to them.

This means that the acquisition date of the assets for which the choice was made under subsection 104-165(2) of the ITAA 1997 will be determined under the rules in Subdivision 109-A of the ITAA 1997.