ATO Interpretative Decision
ATO ID 2006/315
Income Tax
Canadian Convention: alienation of property - becoming an Australian resident - modified cost base of property that is situated in AustraliaFOI status: may be released
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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 Article 13(6) of Schedule 3, as amended by Schedule 3A of the International Tax Agreements Act 1953 (the Canadian Convention), modify the cost base of Australian real property acquired by an individual while they are a Canadian resident who subsequently ceases to be a resident of that country and immediately becomes a resident of Australia?
Decision
Yes. The cost base of the Australian real property is treated as if it was acquired for its fair market value at the time the individual becomes an Australian resident where the taxpayer makes an election under Article 13(6) of the Canadian Convention.
Facts
The taxpayer acquired a rental property in Australia while a Canadian resident.
The taxpayer subsequently ceases to be a Canadian resident and immediately becomes a resident of Australia for tax purposes.
The taxpayer is treated as having alienated the Australian real property and is subject to capital gains tax in Canada upon cessation of residency in Canada.
The taxpayer has made an election under Article 13(6) of the Canadian Convention.
Reasons for Decision
Schedule 3 to the Agreements Act contains the tax treaty between Australia and Canada (the Canadian Convention).
Article 13 of the Canadian Convention deals with taxing rights between Australia and Canada in respect of income, profits or gains arising from the alienation of property.
Article 13(6) of the Canadian Convention applies where:
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- an individual ceases to be a resident of a Contracting State (first-mentioned State) and immediately becomes a resident of the other State (country of new residence), and
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- is treated in the first-mentioned State as having alienated property and is subject to taxation in that State by reason thereof.
Where these conditions are met, the taxpayer may elect to treat the property, for the purpose of tax in the country of new residence, as having been disposed of and immediately re-acquired for its fair market value at residence change time.
As the taxpayer meets the conditions for the making of an election pursuant to Article 13(6) of the Canadian Convention, the cost base of the Australian real property is modified and treated as if it was acquired for its fair market value at the time the taxpayer becomes an Australian resident where the taxpayer makes an election under Article 13(6) of the Canadian Convention.
Date of decision: 14 November 2006Year of income: Year ended 30 June 2007
Legislative References:
International Tax Agreements Act 1953
Schedule 3
Schedule 3, Article 13(6)
Keywords
Canada
CGT cost base
Double tax agreements
International tax
ISSN: 1445-2782