Issue
Can a taxpayer choose under subsection 104-165(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard a capital gain or capital loss from 'some' of the taxpayer's CGT assets covered by CGT event I1?
Decision
No. A taxpayer can only make a choice under subsection 104-165(2) of the ITAA 1997 to disregard a capital gain or capital loss from 'all' of the taxpayer's CGT assets covered by CGT event I1.
Facts
The taxpayer, an individual, purchased shares in two publicly listed Australian companies after 19 September 1985.
The taxpayer was an Australian resident for taxation purposes when they purchased the shares and had always been an Australian resident.
The taxpayer later stopped being an Australian resident for taxation purposes.
The shares do not have the necessary connection with Australia as defined in Item 5 in the table in section 136-25 of the ITAA 1997.
Reasons for Decision
CGT event I1 happens when a taxpayer stops being an Australian resident for taxation purposes (subsection 104-160(1) of the ITAA 1997). The taxpayer is required to calculate a capital gain or capital loss for each CGT asset they owned just before they stop being a resident (except assets having the necessary connection with Australia) (subsection 104-160(3) of the ITAA 1997).
However, an individual can choose to disregard all capital gains and capital losses from CGT event I1 happening (subsection 104-165(2) of the ITAA 1997). The choice, if made, must be made for gains and losses from 'all' CGT assets to which CGT event I1 applied. A taxpayer cannot selectively disregard capital gains or capital losses for some only of the CGT assets they owned just before they stop being an Australian resident.
Under subsection 104-165(3) of the ITAA 1997 the effect of making this choice is to treat the CGT assets otherwise caught by CGT event I1 as having the necessary connection with Australia until the earlier of: (a) a CGT event happening in relation to the asset; or (b) the taxpayer becoming an Australian resident.
This means a capital gain or capital loss will be taken into account by the taxpayer on a subsequent disposal of the assets.