Compare documents

Is the taxpayer, a resident of a country with which Australia does not have a double tax agreement, assessable on a capital gain which arises from the sale of property situated in Australia under subsection 6-10(5) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The taxpayer, a resident of a country with which Australia does not have a double tax agreement, is assessable on a capital gain which arises from the sale of property situated in Australia under subsection 6-10(5) of the ITAA 1997.

The taxpayer is a non-resident for Australian taxation purposes.

The taxpayer purchased a property in Australia.

The taxpayer disposed of the property.

The capital proceeds from the sale exceeded the cost base of the property.

There is no double tax agreement between Australia and the country of which the taxpayer is a resident.

Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The assessable income of a non-resident includes statutory income from all Australian sources as well as other statutory income that a provision includes in assessable income on some basis other than having an Australian source (subsection 6-10(5) of the ITAA 1997).

Section 10-5 of the ITAA 1997 lists the provisions about assessable income. Included in this list is section 102-5 of the ITAA 1997 which provides that a net capital gain is to be included in assessable income.

Section 102-20 of the ITAA 1997 provides that a taxpayer makes a capital gain or capital loss if and only if a CGT event happens. The gain or loss is made at the time of the event.

Section 104-10 of the ITAA 1997 provides that CGT Event A1 happens if the taxpayer disposes of a CGT asset.

The real property owned by the taxpayer is a CGT asset (section 108-5 of the ITAA 1997).

Section 136-10 of the ITAA 1997 sets out the circumstances when a non-resident can make a capital gain or capital loss from a CGT event.

The table in section 136-10 of the ITAA 1997 provides that a capital gain or capital loss can only be made by a non-resident when CGT event A1 happens if the CGT asset has the necessary connection with Australia.

Category 1 of the table in section 136-25 of the ITAA 1997 provides that the following CGT assets have the necessary connection with Australia: (a) land, or a building or structure in Australia (b) an interest in land in Australia, or a right, power or privilege to do with land in Australia (c) a stratum unit in Australia, or an interest in a stratum unit in Australia (d) a share in a company that owns a building on land in Australia that gives the taxpayer with a right to occupy a flat or home unit in the building.

As the real property owned by the taxpayer is situated in Australia, the property is a CGT asset that has the necessary connection with Australia. The taxpayer has disposed of the real property, CGT event A1 has therefore happened (subsection 104-10(1) of the ITAA 1997).

As the capital proceeds from the disposal are more than the property's cost base, the taxpayer has made a capital gain (subsection 104-10(4) of the ITAA 1997).

As Australia has not entered into a double tax agreement with the country of which the taxpayer is a resident, the assessability of Australian sourced income is determined solely on the basis of Australian domestic law.

Therefore, the capital gain made by the taxpayer is assessable under subsection 6-10(5) of the ITAA 1997.