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Edited version of your private ruling
Authorisation Number: 1012578215657
Ruling
Subject: Capital gains tax
Question and answer
Can you disregard a capital gain or loss made on the sale of land located in Country Y?
No.
This ruling applies for the following periods
Year ending 30 June 2014
The scheme commences on
1 July 2013
Relevant facts and circumstances
You became a resident of Australia for taxation purposes a number of years ago.
You purchased land in country Y after 1985.
You sold the land.
You have paid tax on the sale of the land in Country Y.
Assumption(s)
N/A
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Further issues for you to consider
N/A
Anti-avoidance rules
The application of Part IVA of the ITAA 1936 has not been considered as this topic is in the MEI low risk PART IVA list as specified in ORCLA.
Reasons for decision
A capital gain or capital loss may arise if a capital gains tax event (CGT event) happens to a capital gains tax asset (CGT asset). The most common CGT event is CGT event A1 and this occurs when an entity disposes of the ownership interest in an asset. The sale of vacant land would be considered to be a CGT event A1.
You disposed of your CGT asset (the land in country Y). Therefore CGT event A1 occurred.
There are no exemptions that apply to your situation which will exempt the gain made on the sale of the land in Country Y; therefore the capital gain is assessable.
As your asset was located in another country, in determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.
Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).
Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country Y Agreement (the agreement) is listed in section 5 of the Agreements Act.
The agreement between Australia and Country Y operates to avoid the double taxation of income received by residents of Australia and country Y.
Article xx of the agreement considers the tax treatment of Income, profits or gains from the alienation of property.
It states:
Income, profits or gains derived by a resident of a Contracting State from the alienation of real property situated in the other Contracting State may be taxed in that other State.
This means that a person who is resident of Australia and sells land in Country Y can also be taxed on that sale in Country Y as Australia has the taxing rights on the land, but Country Y can also tax in accordance with their laws.
This means that any capital gain that arose from the sale of the land must be declared in your Australian tax return.