ATO Interpretative Decision

ATO ID 2002/194 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as the ATO view on this matter is set out in IT 2562.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the taxpayer, a resident of Australia, assessable on a capital gain which arises from the sale of property in Spain under section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The taxpayer, a resident of Australia, is assessable on a capital gain which arises from the sale of property in Spain under section 6-10 of the ITAA 1997 but a foreign tax credit will be allowed for foreign tax paid.

Facts

The taxpayer is an Australian resident.

The taxpayer owned real property in Spain. This property was sold during the income year and the taxpayer received a net capital gain.

The taxpayer paid Spanish tax on the amount of the net capital gain.

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 an Australian resident includes statutory income from all sources, whether in or out of Australia. (subsection 6-10(4) of the ITAA 1997)

Section 10-5 of the ITAA 1997 lists those 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.

In determining liability to Australian tax on foreign sourced income it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. The Agreement Act effectively overrides that ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

Schedule 39 of the Agreements Act contains the double tax agreement between Australia and Spain (the Spanish Agreement). The Spanish Agreement operates to avoid the double taxation of amounts received by Australian and Spanish residents.

Article 13 of the Spanish Agreement deals with alienation of property. Paragraph (1) of Article 13 provides that income or gains derived by a resident of Australia from the alienation of real property situated in Spain may be taxed in Spain. The Spanish Agreement does not exclude the net capital gain from being taxed in Australia and it may therefore be taxable in both countries.

Paragraph (1) of Article 23 of the Spanish Agreement provides that, subject to the provisions of the law of Australia, a credit for any tax paid in Spain will be allowed against Australian tax payable on income from Spanish sources.

Subsection 160AF(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that where the assessable income of a resident contains foreign sourced income and foreign tax has been paid on that income a foreign tax credit will be allowed. The foreign tax credit allowed against Australian income tax is the lesser of:

•

the amount of that foreign tax paid, reduced in accordance with any relief available to the taxpayer under the law relating to that tax, or

•

the amount of Australian tax payable in respect of the foreign income.

The net capital gain received by the taxpayer forms part of their assessable under section 6-10 of the ITAA 1997. As foreign tax has been paid in relation to this net capital gain a foreign tax credit will be allowed.

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1936
   subsection 160AF(1)
   section 160AFE

Keywords
Capital gains
Foreign tax credits
Double tax agreements
Net capital gains

Business Line:  Small Business/Individual Taxpayers

Date of publication:  28 February 2002

ISSN: 1445-2782