Taxpayer's Federal Court Appeal: Key Points
The taxpayer continued their appeal to the Federal Court, raising additional arguments:
- They claimed that the full US tax paid on each gain should be considered "in respect of" the corresponding net capital gain included in their assessable income.
- Alternatively, they argued that denying them a claim for the full amount of US tax paid contradicted Article 22(2) of the double tax agreement between Australia and the USA (DTA).
Federal Court's Decision:
The Federal Court sided with the Commissioner's interpretation of S.770-10(1), aligning with the aim of preventing double taxation. It reasoned that double taxation occurs only when the amount subject to foreign tax is part of assessable income. Consequently, it found that the taxpayer hadn't experienced double taxation to the extent of 50%.
The Court emphasized that the method of calculating CGT is irrelevant; what matters is the assessable income under Australian law, which excludes 50% of the capital gain and certain capital losses.
Additionally, the Court rejected the taxpayer's alternative argument, stating that Article 22(2) wasn't inconsistent with the Commissioner's interpretation of S.770-10. It clarified that when Article 22(2) refers to Australian tax payable concerning income, it pertains to only 50% of the capital gain. While the general principle allows for a credit against Australian tax payable, it doesn't mandate the credit to cover the entire US tax paid. The determination of the credit falls under Division 770.
Conclusion:
The Federal Court's decision underscores the importance of understanding how foreign taxes impact Australian tax obligations, particularly concerning capital gains. If you have any inquiries regarding tax matters, don't hesitate to reach out to Tax Ideas Accountants & Advisers.
For questions, reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment with our live calendar.
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