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ATO Interpretative Decision

ATO ID 2006/71

Income Tax

Assessability of capital gain on sale of a property from the Netherlands
FOI status: may be released
  • This ATO ID has been amended to make it clear that the amount that is assessable is the capital gain calculated according to the capital gains tax provisions of the ITAA 1997.
    This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
    Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 Australia, assessable on the capital gain on the sale of a property situated in the Netherlands under subsection 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The taxpayer, a resident of Australia, is assessable on the capital gain on the sale of a property situated in the Netherlands under subsection 6-10(4) of the ITAA 1997.

Facts

The taxpayer is an Australian resident for taxation purposes.

The taxpayer owned a real property in the Netherlands.

The taxpayer makes a capital gain on the sale of the property.

The taxpayer pays the Netherlands tax on the 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. Hence the capital gain on the sale of the property is assessable under subsection 6-10(4) of the ITAA 1997.

However, 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 tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one.

Schedule 10 to the Agreements Act contains the tax treaty and the protocol between Australia and the Kingdom of the Netherlands (the Netherlands Agreement). Schedule 10A to the Agreement Act contains the Second Protocol to the Netherlands Agreement (the Second Protocol). The Netherlands Agreement and the Protocols operate to avoid the double taxation of income received by Australian and Netherlands residents.

Article 13 of the Netherlands Agreement deals with alienation of property. Article 13(1) of the Netherlands Agreement provides that income from the alienation of real property situated in the Netherlands may be taxed in the Netherlands.

The Netherlands Agreement does not exclude the capital gain from being taxed in Australia and it may therefore be taxable in both countries.

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

The capital gain made on the on sale of the property forms part of the taxpayer's assessable income under subsection 6-10(4) of the ITAA 1997.

As foreign tax has been paid in relation to this capital gain, a foreign tax credit will be allowed subject to the Australian foreign tax credit rules.

Note: With effect from 1 July 2008 the foreign tax credit system is replaced by the foreign income tax offset system. The position stated in relation to foreign tax credits will apply to income years up to the year ending 30 June 2008. For subsequent income years the position stated will apply to foreign income tax offsets.

Date of decision:  27 February 2006

Year of income:  Year ended 30 June 2002 onwards

Legislative References:
Income Tax Assessment Act 1997
   section 6-10
   subsection 6-10(4)
   section 10-5
   section 102-5

International Tax Agreements Act 1953
   
   section 4
   Schedule 10
   Schedule 10A
   Schedule 10, Article 13
   Schedule 10, Article 13(1)
   Schedule 10, Article 23(1)

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

Siebel/TDMS Reference Number:  4956509

Business Line:  Public Groups and International

Date of publication:  17 March 2006

ISSN: 1445-2782


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