The US-Australia Double Tax Agreement Article 16(2)(g): What You Need to Know

The US-Australia double tax agreement (DTA) is an important document that governs taxation between the two countries. One particular article, Article 16(2)(g), has significant implications for businesses and individuals who operate in both countries. In this article, we will break down what this provision means and how it can impact your taxes.

Background

The US-Australia DTA was first signed in 1982 and has been revised several times since then. The purpose of the agreement is to prevent double taxation of income and capital gains earned by individuals and businesses in both countries. The DTA also provides for the exchange of information between the tax authorities of the two countries and establishes procedures for resolving disputes.

What is Article 16(2)(g)?

Article 16(2)(g) is a provision in the DTA that relates to the taxation of capital gains. Specifically, it allows Australia to tax capital gains on the sale of shares in an Australian company if the shares derive more than 50% of their value directly or indirectly from real property situated in Australia.

This means that if you sell shares in an Australian company and those shares are closely tied to Australian real estate, then Australia has the right to tax any capital gains you make on that sale. However, if the shares are not closely tied to Australian real estate, then Australia would not have the right to tax those capital gains.

Implications for US taxpayers

For US taxpayers who sell shares in Australian companies, Article 16(2)(g) can have significant tax implications. If the shares are closely tied to Australian real estate, then Australia can tax any capital gains on the sale. This means that US taxpayers may be subject to double taxation – paying taxes on the same income in both countries.

To avoid double taxation, US taxpayers can take advantage of the foreign tax credit. This credit allows US taxpayers to offset taxes paid to foreign countries against their US tax liability. By claiming the foreign tax credit, US taxpayers can avoid paying taxes on the same income twice.

Conclusion

Article 16(2)(g) of the US-Australia DTA is an important provision that affects individuals and businesses who operate in both countries. If you sell shares in an Australian company and those shares are closely tied to Australian real estate, then Australia has the right to tax any capital gains you make on that sale. To avoid double taxation, US taxpayers can claim the foreign tax credit. By understanding the implications of this provision, you can ensure that you are compliant with both US and Australian tax laws.