ATO ID 2010/126: Capital gains tax: small business concessions - maximum net asset value test - foreign resident's worldwide assets
Date of decision: 15 January 2010
Year of income: Year ended 30 June 2009
Business line: Private Groups and High Wealth Individuals

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
Summary: 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.

Legislative references: Income Tax Assessment Act 1997 section 152-15 section 152-20 subsection 855-10(1) section 855-15 section 855-20
Related ATO interpretative decisions: ATO ID 2005/110
Subject references: Basic conditions for relief Capital gains tax CGT small business relief Maximum net asset value test Non resident individuals