Non-resident CGT on sale of Business

Question

I am a Singapore Resident for taxation purposes, as per Article 3 Section 2(a)(i) of the Singapore Australia Double Taxation Agreement, as I have a permanent home available to me in Singapore and don’t have a permanent home available to me in Australia.

I am the sole Director and Owner of a ‘Singapore PTE LTD’ which is managed and controlled from Singapore.

I would like to start a business in Australia.

I plan to register an ‘Australian PTY LTD’ to carry on this business. ‘Australian PTY LTD’ will be owned by ‘Singapore PTE LTD’

I will manage the business from Singapore and organise contractors to carry on the business in Australia. Just to be clear there will not be any property such as offices, cars etc used in the business as all dealings will be done via contractors.

If I sell the business in 5 years time for a profit, will a CGT event arise or will the profit made from sale of the business be classified as income for ‘Singapore PTE LTD’?

Answer

When you sell the business it will either be the Australian Pty Ltd selling a business or the Singapore PTE Ltd selling its shares in Australian Pty Ltd

Of course if it is Australian Pty Ltd selling the business then it is simply an Australian company selling a business so a CGT event is triggered but it qualifies for the small business CGT concessions, no more different than any other Australian company ie need to have business assets less than $6mil or turnover under $2mil note companies are not entitled to the 50% CGT discount

Now if Singapore PTE Ltd sells its shares in Australian Pty Ltd, as it owns more than a 10% controlling interest then that sale would be considered the sale of an Australian asset so Australia would have a right to tax it in the case of most of our double tax agreements. I am assuming this is the case with Singapore. Certainly the issue of double tax agreements is outside the guidelines for questions in askbantacs. As it is the sale of an Australian asset then Singapore Pte ltd would be liable for tax in Australia on the gain made on the shares. The shares are an active asset so still the small business concessions will apply.

In short yes the sale of the business would be subject to CGT in Australia but you will also qualify for the small business concessions which if used effectively can reduce the CGT to very little, even zero.

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