ATO Interpretative Decision

ATO ID 2010/126

Income Tax

Capital gains tax: small business concessions - maximum net asset value test - foreign resident's worldwide assets
FOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Are the worldwide CGT assets of a foreign resident included in the net value of their CGT assets in determining if they satisfy the maximum net asset value test in section 152-15 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The worldwide CGT assets of a foreign resident are included in the net value of their CGT assets in determining if they satisfy the maximum net asset value test in section 152-15 of the ITAA 1997.

Facts

A foreign resident disposed of a farm in Australia and made a capital gain.

The net value of the foreign resident's (and other related entities) CGT assets that are taxable Australian property does not exceed $5 million. The net value of the foreign resident's worldwide CGT assets exceeds $5 million.

Reasons for Decision

A capital gain or capital loss from a CGT event is disregarded under subsection 855-10(1) of the ITAA 1997 if it is made by a foreign resident, or the trustee of a foreign trust for CGT purposes, just before the CGT event happens and the CGT event happens in relation to a CGT asset that is not 'taxable Australian property'. What constitutes 'taxable Australian property' is set out in section 855-15 of the ITAA 1997. Taxable Australian real property is listed as item 1 of the table in section 855-15. Taxable Australian real property includes real property situated in Australia (section 855-20 of the ITAA 1997).

If a foreign resident makes a capital gain from a CGT event that happens in relation to real property situated in Australia, the small business CGT concessions may apply if all the conditions are satisfied.

One of the conditions is the maximum net asset value test in section 152-15 of the ITAA 1997. Under this test, the net value of the CGT assets of the taxpayer and certain related entities must not exceed $5 million.

Section 152-20 of the ITAA 1997 includes all the CGT assets of the taxpayer and related entities (subject to the exclusions in section 152-20 of the ITAA 1997) regardless of whether they are located in Australia or elsewhere.

Accordingly, a foreign resident's worldwide CGT assets are included in the net value of their CGT assets in determining if they satisfy the $5 million maximum net asset value test in section 152-15 of the ITAA 1997.

Note: for CGT events happening in the 2007-08 and later income years, section 152-15 of the ITAA 1997 has been amended by the Tax Laws Amendment (Small Business) Act 2007 to increase the Maximum net asset value test threshold to $6 million.

Amendment History

Date of Amendment Part Comment
16 January 2015 Issue
Decision
Amendments to clarify content
ATO Interpretative Decisions overturned by this decision Changed to Related ATO IDs. Amendment to clarify that this ATO ID reflects the same view in respect of the replacement or rewritten provision for decisions on or after 12 December 2006.

Date of decision:  15 January 2010

Year of income:  Year ended 30 June 2009

Legislative References:
Income Tax Assessment Act 1997
   section 152-15
   section 152-20
   subsection 855-10(1)
   section 855-15
   section 855-20

Related ATO Interpretative Decisions
ATO ID 2005/110

Keywords
Basic conditions for relief
Capital gains tax
CGT small business relief
Maximum net asset value test
Non resident individuals

Siebel/TDMS Reference Number:  1-226ODEA; 1-CR31IVG

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  4 June 2010
Date reviewed:  23 October 2017

ISSN: 1445-2782

history
  Date: Version:
  15 January 2010 Original statement
You are here 16 January 2015 Updated statement