Issue
Can Article 13(6) of Schedule 3, as amended by Schedule 3A of the International Tax Agreements Act 1953 (the Canadian Convention), modify the cost base of Australian real property acquired by an individual while they are a Canadian resident who subsequently ceases to be a resident of that country and immediately becomes a resident of Australia?
Decision
Yes. The cost base of the Australian real property is treated as if it was acquired for its fair market value at the time the individual becomes an Australian resident where the taxpayer makes an election under Article 13(6) of the Canadian Convention.
Facts
The taxpayer acquired a rental property in Australia while a Canadian resident.
The taxpayer subsequently ceases to be a Canadian resident and immediately becomes a resident of Australia for tax purposes.
The taxpayer is treated as having alienated the Australian real property and is subject to capital gains tax in Canada upon cessation of residency in Canada.
The taxpayer has made an election under Article 13(6) of the Canadian Convention.
Reasons for Decision
Schedule 3 to the Agreements Act contains the tax treaty between Australia and Canada (the Canadian Convention).
Article 13 of the Canadian Convention deals with taxing rights between Australia and Canada in respect of income, profits or gains arising from the alienation of property.
Article 13(6) of the Canadian Convention applies where: • an individual ceases to be a resident of a Contracting State (first-mentioned State) and immediately becomes a resident of the other State (country of new residence), and • is treated in the first-mentioned State as having alienated property and is subject to taxation in that State by reason thereof.
Where these conditions are met, the taxpayer may elect to treat the property, for the purpose of tax in the country of new residence, as having been disposed of and immediately re-acquired for its fair market value at residence change time.
As the taxpayer meets the conditions for the making of an election pursuant to Article 13(6) of the Canadian Convention, the cost base of the Australian real property is modified and treated as if it was acquired for its fair market value at the time the taxpayer becomes an Australian resident where the taxpayer makes an election under Article 13(6) of the Canadian Convention.