ATO Interpretative Decision

ATO ID 2003/199 (Withdrawn)

Income Tax

Capital gains tax: CGT discount and small business concessions - disposal of active asset by non-resident
FOI status: may be released

This ATOID is withdrawn because it involves a straight forward application of the law as it applied in respect of CGT events that happened before 12 December 2006. For CGT events that happened on or after that date, Division 136 has been replaced by Division 855 of the Income Tax Assessment Act 1997.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Can the CGT discount in Division 115 of the Income Tax Assessment Act 1997 (ITAA 1997) and the small business concessions in Division 152 of the ITAA 1997 apply to a capital gain made on the disposal of an active asset by a non-resident?

Decision

Yes. Provided all the requirements in Division 115 and Division 152 of the ITAA 1997 are satisfied, non-residents are entitled to apply both the CGT discount and the small business concessions to a capital gain made on the disposal of an active asset that has the necessary connection with Australia.

Facts

The taxpayer (a non-resident) acquired a block of land in Australia after 21 September 1999. The taxpayer used the land in business that they carried on here.

The taxpayer disposed of the land two years later.

The taxpayer made a capital gain on the disposal of the land and wanted to apply the CGT discount in Division 115 of the ITAA 1997 and the small business concessions in Division 152 of the ITAA 1997 to reduce their capital gain.

Reasons for Decision

A non-resident makes a capital gain or loss only if a CGT event happens to a CGT asset that has the necessary connection with Australia (section 136-10 of the ITAA 1997). The categories of CGT assets having the necessary connection with Australia are specified in section 136-25 of the ITAA 1997.

As the land is located in Australia, it has the necessary connection with Australia. On disposal of the land CGT event A1 happens and the non-resident may make a capital gain or loss.

Section 115-5 of the ITAA 1997 provides that a capital gain is a discount capital gain if all the requirements of sections 115-10, 115-15, 115-20 and 115-25 of the ITAA 1997 are met. There is no requirement in Division 115 of the ITAA 1997 that the taxpayer be a resident of Australia.

In order to qualify for the small business concessions, all of the basic conditions in Subdivision 152-A of the ITAA 1997 must be satisfied. One of the basic conditions specified in Subdivision 152-A of the ITAA 1997 is that the CGT asset must be an active asset. An active asset is defined in section 152-40 of the ITAA 1997. Paragraph 152-40(1)(a) provides that:

(1) a CGT asset is an active asset if,... [at a particular time], you own it and:

(a)
use it, or hold it ready for use, in the course of carrying on a business.

If the active asset is a share it must be one in an Australian resident company or if it is a trust interest it must be one in a resident trust for CGT purposes: subsection 152-40(3) of the ITAA 1997. There is no requirement that the owner of the asset be a resident of Australia to qualify for the small business CGT concessions.

Therefore, providing all of the requirements in Division 115 and Division 152 of the ITAA 1997 are satisfied, the non-resident taxpayer may apply both the CGT discount and the small business CGT concessions to reduce the capital gain made on the disposal of the land.

Date of decision: 15 March 2003

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   Division 115
   section 115-5
   section 115-10
   section 115-15
   section 115-20
   section 115-25
   section 136-10
   section 136-25
   Division 152
   Subdivision 152-A
   section 152-10
   paragraph 152-40(1)(a)
   subsection 152-40(3)

Keywords
Basic conditions for relief
Capital gains tax
CGT asset with the necessary connection with Australia
CGT discount
CGT event A1-disposal of a CGT asset
CGT small business relief
Net capital gains

Business Line: Losses and Capital Gains Tax Centre of Expertise

Date of publication: 4 April 2003

ISSN: 1445-2782

history

	Date:	Version:
	15 March 2003	Original statement
You are here	15 January 2010	Archived

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