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 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.