ATO Interpretative Decision
ATO ID 2004/204
Income Tax
Assessability of a capital gain derived by a non-resident from the sale of real property situated in Australia - no double tax agreement appliesFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the taxpayer, a resident of a country with which Australia does not have a double tax agreement, assessable on a capital gain which arises from the sale of property situated in Australia under subsection 6-10(5) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The taxpayer, a resident of a country with which Australia does not have a double tax agreement, is assessable on a capital gain which arises from the sale of property situated in Australia under subsection 6-10(5) of the ITAA 1997.
Facts
The taxpayer is a non-resident for Australian taxation purposes.
The taxpayer purchased a property in Australia.
The taxpayer disposed of the property.
The capital proceeds from the sale exceeded the cost base of the property.
There is no double tax agreement between Australia and the country of which the taxpayer is a resident.
Reasons for Decision
Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The assessable income of a non-resident includes statutory income from all Australian sources as well as other statutory income that a provision includes in assessable income on some basis other than having an Australian source (subsection 6-10(5) of the ITAA 1997).
Section 10-5 of the ITAA 1997 lists the provisions about assessable income. Included in this list is section 102-5 of the ITAA 1997 which provides that a net capital gain is to be included in assessable income.
Section 102-20 of the ITAA 1997 provides that a taxpayer makes a capital gain or capital loss if and only if a CGT event happens. The gain or loss is made at the time of the event.
Section 104-10 of the ITAA 1997 provides that CGT Event A1 happens if the taxpayer disposes of a CGT asset.
The real property owned by the taxpayer is a CGT asset (section 108-5 of the ITAA 1997).
Section 136-10 of the ITAA 1997 sets out the circumstances when a non-resident can make a capital gain or capital loss from a CGT event.
The table in section 136-10 of the ITAA 1997 provides that a capital gain or capital loss can only be made by a non-resident when CGT event A1 happens if the CGT asset has the necessary connection with Australia.
Category 1 of the table in section 136-25 of the ITAA 1997 provides that the following CGT assets have the necessary connection with Australia:
- (a)
- land, or a building or structure in Australia
- (b)
- an interest in land in Australia, or a right, power or privilege to do with land in Australia
- (c)
- a stratum unit in Australia, or an interest in a stratum unit in Australia
- (d)
- a share in a company that owns a building on land in Australia that gives the taxpayer with a right to occupy a flat or home unit in the building.
As the real property owned by the taxpayer is situated in Australia, the property is a CGT asset that has the necessary connection with Australia. The taxpayer has disposed of the real property, CGT event A1 has therefore happened (subsection 104-10(1) of the ITAA 1997).
As the capital proceeds from the disposal are more than the property's cost base, the taxpayer has made a capital gain (subsection 104-10(4) of the ITAA 1997).
As Australia has not entered into a double tax agreement with the country of which the taxpayer is a resident, the assessability of Australian sourced income is determined solely on the basis of Australian domestic law.
Therefore, the capital gain made by the taxpayer is assessable under subsection 6-10(5) of the ITAA 1997.
Date of decision: 25 February 2004Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 6-10
subsection 6-10(5)
section 10-5
section 102-5
section 102-20
section 104-10
subsection 104-10(1)
subsection 104-10(4)
section 108-5
section 136-10
section 136-25
Keywords
Capital gains tax
CGT assets
CGT event A1-disposal of a CGT asset
CGT taxable Australian assets
Non resident entities
ISSN: 1445-2782
| Date: | Version: | |
| You are here → | 25 February 2004 | Original statement |
| 5 May 2006 | Archived |