Capital gains tax: CGT discount - asset sold within 12 months of becoming an Australian resident.

Is a capital gain made on the sale of a CGT asset by a taxpayer within 12 months of them becoming an Australian resident a discount capital gain under subdivision 115-A of the Income Tax Assessment Act 1997 (ITAA 1997) if the taxpayer owned the asset before they became a resident?

No, the capital gain is not a discount capital gain and the 50% discount percentage is therefore not available.

The CGT discount is only available for assets acquired at least 12 months before disposal. Here, the taxpayer will have acquired the asset less than 12 months before its disposal because subsection 136-40(3) of the ITAA 1997 treats the taxpayer as having acquired it when they became an Australian resident.

An individual taxpayer became an Australian resident for taxation purposes in the 2002 income year.

The taxpayer owned an asset before becoming a resident which they had acquired after 19 September 1985.

The asset did not have the necessary connection with Australia as set out in section 136-25 of the ITAA 1997.

The asset was disposed of by the taxpayer within 12 months of becoming a resident.

A capital gain will be a discount capital gain if it results from a CGT event happening to a CGT asset that was acquired at least 12 months before the CGT event: subsection 115-25(1) and section 115-40 of the ITAA 1997.

Assets owned by a taxpayer just before becoming an Australian resident are treated as having been acquired by the taxpayer for capital gains tax purposes when they become a resident: subsection 136-40(3) of the ITAA 1997. This rule does not apply to assets that have the necessary connection with Australia as set out in section 136-25 of the ITAA 1997 and to assets acquired before 20 September 1985: subsection 136-40(1).

Therefore, the taxpayer has disposed of the asset within 12 months of its deemed acquisition. Any capital gain arising from the disposal is not a discount capital gain to which the 50% discount percentage referred to in paragraph 115-100(a) of the ITAA 1997 applies.