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04 Feb 09 Capital gains not taxable under pre-CGT DTAs - Undershaft

The Federal Court (Lindgren J) has held that capital gains derived by two non-resident taxpayers were not subject Australian tax by reason of the protection provided, respectively, by Article 7 of the Australia Netherlands Double Taxation Agreement and by Article 5 of the former Australia United Kingdom Double Taxation Agreement. The reasons for so holding were similar to those given by Edmonds J in his decision in Virgin Holdings SA v FCT [2008] FCA 1503 (10 October 2008) - see 2008 TAXVINE No 41 (11) (17 October 2008). Specifically, his Honour held that capital gains were the subject of both DTAs, notwithstanding the fact that they were entered into before the former Part IIIA was inserted into ITAA 1936.

The Commissioner argued before Lindgren J that either Virgin Holdings was distinguishable or that the Court should not consider itself obliged by considerations of comity to follow Virgin Holdings. His Honour was of the view that he should follow Virgin Holdings unless the decision was "plainly wrong". This required his Honour to give full consideration to the issues "with a view to arriving independently at my own conclusion". Having done so, and finding for the taxpayers, his Honour concluded, at para 173:

"It will be clear from my reasoning above that I have independently reached conclusions on the issues that were common to the present proceedings and Virgin Holdings. It will also be clear, for what significance it may be thought to have, that I do not think that Virgin Holdings was wrongly decided."

Undershaft (No 1) Limited v FCT [2009] FCA 41 (Federal Court, Lindgren J, 3 February 2009).

For a copy of the decision, go here.

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