Alienation of Property and Australia’s Double Tax Agreements

The Government has decided to amend the International Tax Agreements Act 1953 to clarify the interpretation of the alienation of property articles in Australia’s Double Tax Agreements (DTAs). This action follows the decision of the Full Federal Court in the case of Commissioner of Taxation v. Lamesa Holdings BV.

In Lamesa, the Full Federal Court decided that real property held by a non-resident through a chain of companies did not fall within the terms of the alienation of real property provision in the Australia/Netherlands DTA. The decision of the Court means that the alienation of property article applies where real property is held through a company but does not apply where the real property is held through a company at the bottom of a chain of companies and one of the higher tier companies is alienated. This decision has implications for all of Australia’s DTAs and highlights opportunities for non-residents to escape Australian taxation on profits from the sale of real property and mining rights in Australia by the use of a chain of holding companies or trusts.

The Government has therefore decided to amend the law to ensure it applies to profits arising from the indirect alienation of real property by a non-resident after mid-day AEST today.

In deciding on this course of action, the Government considered the alternative of seeking to appropriately amend each of Australia’s numerous DTAs. However, the process of individual amendment would absorb considerable time and resources. Moreover, in the interim, revenue losses could be significant. In these circumstances, and as the amendment will do no more than make Australia’s taxing rights effective, the Government has concluded that the appropriate course is to strengthen the legislation.

Countries with whom Australia has concluded comprehensive DTAs are being advised of the proposed action.

27 April 1998

CANBERRA

Contact:

Greg Trigg

Australian Taxation Office

Telephone (02) 6216 1457