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Edited version of your private ruling
Authorisation Number: 1012550484974
Ruling
Subject: Capital gains tax - disposal of overseas property
Question:
Is the capital gain or capital loss made on the disposal of your overseas property included in your income tax?
Answer:
Yes.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commences on
1 July 2013
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
Your grandparent acquired a property in a foreign country prior to 20 September 1985.
Approximately 11 years ago your parent inherited the property on the death of your grandparent.
Approximately four years ago you inherited the property on the death of your parent.
Probate was finalised in the same year.
You will dispose of the property in the future.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 128-15
International Tax Agreements Act 1953 Section 4
International Tax Agreements Act 1953
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
The most common capital gains tax (CGT) event, CGT event A1, which occurs when you dispose of a CGT asset. The time of the event is when you enter into the contract for the disposal or if there is no contract - when a change of ownership occurs.
CGT event A1 will occur when you dispose of the property.
Deceased estate
When a person dies, a capital gain or capital loss from a CGT event happening to a CGT asset owned by the deceased, just before death, is generally disregarded.
Generally, assets inherited through a deceased estate are acquired on the deceased's date of death. Therefore, you are taken to have acquired the property on your parent's date of death.
As you have acquired the property after 20 September 1985, the property is subject to CGT upon its disposal.
For more information on deceased estate please see the enclosed fact sheet.
Foreign income
If you were an Australian resident and you received income from overseas, you must show your assessable foreign income even if tax was taken out in the country from which the income came. Foreign income that is exempt from Australian tax may still be taken into account to work out the amount of tax you have to pay on your other income.
You can claim a tax offset for the foreign tax you have paid on income, profits or gains (including gains of a capital nature) that are included in your Australian assessable income. In some circumstances, the offset is subject to a limit.
To be entitled to a foreign income tax offset:
· you must have actually paid, or be deemed to have paid, an amount of foreign income tax
· the income or gain on which you paid foreign income tax must be included in your assessable income for Australian income tax purposes.
For more information please see the enclosed booklet- How to claim a foreign tax credit 2008
(NAT 2338-6.2008). These rules apply for income years that start on or after 1 July 2008.
Foreign country agreement
In determining liability to Australian tax on income it is necessary to consider not only the Australian 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 this Act with the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the Income Tax Assessment Act 1997 ITAA 1997 where there are inconsistent provisions (except for some limited provisions).
Schedule X to the Agreements Act contains the double tax agreement between Australia and the foreign country. This Agreement operates to avoid the double taxation of income received by Australian and the foreign country's residents.
However, the Commissioners view is that this Agreement does not limit Australia's right to tax gains which are taxable in Australia under its CGT regime. This is because the Agreement does not distribute taxing rights over capital gains.