Revised tax treaty with Switzerland

The Commonwealth Treasury has released exposure draft legislation to give the revised tax treaty between Australia and Switzerland (signed in July 2013) the force of law in Australia.The revised treaty will replace the existing tax treaty signed in 1980. The revised treaty aims to align the bilateral tax arrangements more closely with current Australian and international treaty policy settings.

The new treaty will enter into force when Australia and Switzerland provide notification to each other on the completion of the necessary domestic procedures. Once the Convention enters into force, it will take effect in Australia as follows:

  • in respect of fringe benefits tax, on fringe benefits provided on or after 1 April next following entry into force;
  • in respect of withholding tax on income derived by a resident of Switzerland, on income derived on or after 1 January next following entry into force;
  • in respect of other Australian tax, on income, profits or gains of any income derived in the income year beginning 1 July next following entry into force; and
  • in respect of exchange of information, to information that relates to taxation or business years in course on, or beginning on or after, 1 January next following entry into force.

Resource Capital Fund III to seek High Court special leave

The taxpayer (Resource Capital Fund III) has lodged an application for special leave to appeal the decision of the Full Federal Court to the High Court of Australia. The dispute with the Commissioner relates to the application of the capital gains tax (CGT) rules to a capital gain made by the taxpayer (a United States based private equity fund) on the sale of shares in St Barbara Mines Ltd (SBM). The principal assets of SBM were mining rights (granted under Australian law), mining information and plant and equipment.

The case turned primarily on the interpretation of the Double Tax Agreement between Australia and the United States of America (USA Treaty) and the application of Division 855 of the Income Tax Assessment Act 1997.

Division 855 allows foreign residents to disregard a capital gain or loss unless the relevant CGT asset is a direct or indirect interest in Australian real property, or relates to a business carried on in Australia by the foreign resident through a permanent establishment in Australia.

On the appeal to the Full Federal Court, the Commissioner was successful in arguing that the shares in SBM were an indirect interest in real property and that the gain was not exempt from tax under the USA Treaty.