Assessability of net capital gain from the sale of South African real property by an Australian resident

Is an Australian resident taxpayer assessable under section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) on a net capital gain which includes a capital gain they made from the sale of real property in South Africa?

Yes. An Australian resident taxpayer is assessable under section 6-10 of the ITAA 1997 on a net capital gain which includes a capital gain they made from the sale of real property in South Africa.

The taxpayer is a resident of Australia for income tax purposes.

The taxpayer owned real property in South Africa. This property was sold during the income year.

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 an Australian resident includes statutory income from all sources, whether in or out of Australia (subsection 6-10(4) 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.

However, in determining liability to Australian tax on foreign sourced income, it is necessary to consider not only the 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 that Act with the ITAA 1997 so that those acts are read as one.

Schedule 42 to the Agreements Act contains the double tax agreement between Australia and South Africa (the South African Agreement). The South African Agreement operates to avoid the double taxation of amounts received by Australian and South African residents.

Article 13 of the South African Agreement deals with the alienation of property. Article 13(1) of the South African Agreement provides that income, profits or gains derived by a resident of Australia from the alienation of real property situated in South Africa may be taxed in South Africa. However, Article 13(1) does not preclude the net capital gain from being taxed in Australia. This is supported by Article 13(5).

Accordingly, the Australian resident taxpayer is assessable under section 6-10 of the ITAA 1997 on the net capital gain which includes the capital gain they made from the sale of real property in South Africa. The capital gain and net capital gain will be calculated in accordance with the CGT provisions in the ITAA 1997.