Burton special leave application refused

14 February 2020

The taxpayer's application for special leave to appeal the decision in Burton v Commissioner of Taxation [2019] FCAFC 141 has been disallowed by the High Court. This means that the majority decision of the Full Federal Court in that case stands. That decision means that the US-Australia Double Tax Agreement does not assist Australian taxpayers who derive long term capital gains in the USA because the amount of the offset to be claimed will be determined by operation of Section 770-10 of the Income Tax Assessment Act 1997.

The taxpayer's application for special leave to appeal the decision in Burton v Commissioner of Taxation [2019] FCAFC 141 has been disallowed by the High Court. This means that the majority decision of the Full Federal Court in that case stands. That decision means that the US-Australia Double Tax Agreement does not assist Australian taxpayers who derive long term capital gains in the USA because the amount of the offset to be claimed will be determined by operation of Section 770-10 of the Income Tax Assessment Act 1997.

In relation to discounted capital gains (which were at issue in Burton) that means that the Section 770-10 applies unfettered by the treaty. Section 770-10(1) Note 2 provides that if foreign tax has been paid on an amount which includes non-assessable non-exempt income then a foreign income tax offset is limited.

That means that where only 50% of a foreign capital gain is included in assessable income only 50% of the foreign tax which has been paid on the gain would be allowed as a credit.