Double taxation agreements

If a property was sold in Europe and no CGT was liable in that European country on that sale due to the property being held for over the amount of years required not to be liable for CGT, since Australia & that European country has Double Taxation Agreements, would that mean that there is no tax liable in Australia and the sale of that property wouldn't be needed to be declared in an Aussie tax return? When transferring those funds from Europe to Oz I presume it would be flagged as it would be a large amount.

 

No

 

Do you mean no it's not liable tax in Oz & not reportable on the tax return here?

 

He means your understanding of how double taxation agreements works is completely wrong.

Double taxation means that if you pay tax in a foreign country you won't have to pay the same tax again in Australia. If you've paid no tax in the foreign country you have to pay full tax in Australia.

Any tax you pay in a foreign country with a double taxation agreement is a deduction from, not instead of, Australian tax.

 

I was answering no to this:
would that mean that there is no tax liable in Australia and the sale of that property wouldn't be needed to be declared in an Aussie tax return?

 

if you are an Australian tax resident then you will pay capital gains tax on property held overseas. the fact you paid no tax on sale in that country just means you wont receive any foreign tax offset as you havent paid any taxes. but as an Australian tax resident you would be liable for tax on sale of the property.

 

Take care when reading DTA's.

Some counties have a developing tax system unlike ours. This means that the implementation of taxation is more of a policy driven system based on how the taxing authority is dealing with the matter at the time.

I have seen some very clean examples of law in another country that are simply ignored. The revenue authority feels that the outcome is unjust and deals with it fairly at the time (or how they perceive fairness).

So you really need local advice that is in writing before you act.

Clearly if you are dealing with an advanced economy (Germany, UK etc) the risk is lowered.

 

1. Is the country a party to a Australian DTA / Treaty ?
2. What is the tax residency of the property owner ?
3. What was their residency for the period of ownership ?

Generally speaking Australia would seek to tax real property under our CGT regime if you are a AU resident. If you ever became a AU resident at some time there may be a tax impact that affects that property in any event. For example a CGT event occurred when you became a tax resident. That may affect how the CGT calc is made.

Under DTAs the source country (foreign country) would have a right to tax as well as Australia. A credit may be given by the ATO for the income tax paid in the foreign country covered by a DTA (Most but not all do) Income tax does not ordinarily mean withholding tax or local taxes such as inheritances taxes etc - Ross mentions many of these Eastern Euro absurdities. They are often intended to encourage that the property stays locally owned. The other issue is that some overseas jurisdication dont tax property but may impose other conditions limiting a change of owner and repatriation of funds offshore (FYR Macedonia is one that springs to mind). Local advice and a local lawyer may assist you to avoid fraud.

If there is no DTA Australian would still assert its rights and the foreign country may also. No credit is given for this anomoly.

That why its called a Double Tax Agreement.

 

1. Yes
2. Australian Citizen & Resident
3. Australian Resident

Another thing, the property was bought pre-1985 so that would make it not subject to capital gains tax in Australia, correct? If this is correct, would the sale still need to be declared on the tax return?

 

If its exempt no return formalities are required.

Just carefully check the actual date acquired so that error doesnt occur. If thats all correct then its not a concern. Retain records of course as ATO or Austrack could ask for supporting info.

 

did you do any major capital improvements after sept 1985 ?

 

No