Australian Double Tax Agreement

BizAngel

I'm reading Article 7 "Income from Real Property" in the Double Taxation Agreement between Ireland & Australia. My interpretation of the article is that if a tax resident of Ireland sold a property in Australia then they pay any related CGT tax in Australia only and not in Ireland. My understanding of Irish CGT is that Irish tax individuals are liable on their world wide gains in Ireland but this agreement would suggest that in the case of Australian property gains are not taxed in Ireland if the tax is paid in Australia. Does anyone know if my interpretation is correct?

The_Bot

Your interpretation of the DTA is incorrect I'm afraid.

Firstly, as you note, Irish tax resident (or ordinarily resident) individuals are liable to Irish CGT on their worldwide gains. Where tax is suffered in a foreign jurisdiction on the same gain, the DTA provides the mechanism for relief from any double taxation. This can either be through the exemption of the gain from tax in one jurisdiction or, far more commonly in an Irish context, credit in the jurisdiction of residence for tax suffered in the source (i.e. other) jurisdiction.

Article 7(1) of the Ireland/Australia DTA provides that:

"Income from real property may be taxed in the Contracting State in which the real property is situated."

This effectively means that the DTA allocates primary taxing rights to jurisdiction in which the property is situated, in your example Australia. This does not mean that Ireland has no right to tax the gain. Ireland will also tax the gain as the jurisdiction of residence but will give a credit for the Australian tax suffered in accordance with Article 25 (elimination of Double Taxation) and Ireland own domestic provisions in providing double tax relief.

The wording of the DTA would be different if one jurisdiction was provided no right to tax. One example of this is the interest article of the UK/Ireland DTA which starts of as follows:

"Interest derived and beneficially owned by a resident of a Contracting State shall be taxable only in that State"

Marcusm

The need for precision is apparent here; art 7 applies to income not gains. Article 14 is the appropriate one (although the outcome is the same).

The_Bot

Marcusm wrote: »

The need for precision is apparent here; art 7 applies to income not gains. Article 14 is the appropriate one (although the outcome is the same).

Right you are, I overlooked that.

Alan Shore

Be careful read the charter.

I'm out!

Mr. Incognito

This is a hypothetical question on legislation and I encourage theorethical discussions.

Its when people want to apply the theory to real life situations and take non tailored advice as gospel I lock and ban.

Here, and in all cases, Internation Treaties overrule domestic law.

Because Ireland did not have CGT prior to (1972? ish) Double taxation treaties prior to this date do not incorporate relief for CGT.

Treaties after this date do. Whereever the asset is located has primary taxing over capital assets. Hense Australia and Irelands domestic provisions are overruled.

dogsears

Mr. Incognito wrote: »

Wherever the asset is located has primary taxing over capital assets. Hense Australia and Irelands domestic provisions are overruled.

Yes but the treaty only take precedence where there's a conflict between it and the domestic provisions. So here, the treaty provides that a gain may be taxed in the country the property is in. In the hypothetical, that would be Australia. So, if Australian domestic law taxes such gains in the hands of Non-residents (which I think it does though I'm not too sure), the treaty doesn't override that.

Also the treaty doesn't say the gain may be taxed only in the country the property is in. So Ireland's domestic provisions may tax the gain (they do) and the treaty doesn't override this.

So without any conflict with the treaty you have taxation in both countries. This then gets relieved in accordance with the treaty which means (Art 25) Ireland gives credit against Irish CGT for the Australian CGT suffered. (Similar to what was said above, but now in the context of CGT).

Marcusm

It's also worth noting that while the rubric that international treaties overrule domestic law has always been preached in Ireland (and generally practiced), it is, like all such truisms, not necessarily correct. For example, in 1988, the US enacted a changed to the Internal Revenue Code specifically providing that notwithstanding the preferential nature of DTAs, they were not to overrule particular parts of the code - this was in response to an increase or appreciation of treaty shopping - plus the EC treaty, while reserving competence for direct tax matters to the member states, effectively means that DTAs cannot be entered into or enforced to the extent that they are incompatible with the purpose of the treaty (freedom of movement of people, capital, goods, establishment etc). I guess that's an example of one international treaty overruling another!