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  ― 483 ―

35. Chapter 24: Appendix C: Situs of Assets

24.C1. The common law has various technical rules for determining the situs of an item of property. These rules are based largely on considerations of convenience. Some Australian taxing legislation has relied exclusively on the common law rules: the present Estate Duty Assessment Act, for example, contains no rules as to the situs of assets. Other Australian taxing legislation has modified the common law rules to some extent by introducing rules applying in particular situations: section 13 of the Gift Duty Assessment Act contains a number of rules of this sort.

24.C2. In the Committee's view the common law rules are not always appropriate in this context: in certain areas, including speciality debts and interests in trust estates, they have been used in the past to avoid tax. The modifications to the common law rules in the Gift Duty Assessment Act are inadequate in some instances and go too far in others. For example, the Act ignores the problem of determining the situs of a trust estate, yet treats shares in a company incorporated outside Australia as being situated in this country if the shares are listed on a branch register of a company in Australia. Shares in a company incorporated in Australia should be taxable under Australian law irrespective of where the register on which the shares are listed is kept, since the company is substantially dependent on Australian law for its existence and continuance. For the same reason, shares in a company incorporated outside Australia should not be treated as being situated in this country even where they are listed on a register in Australia. In the case of a trust estate, the common law rules, which depend on how far the administration of the trust estate has proceeded, should not be followed. An interest in a trust estate, fully administered or otherwise, ought to be treated as situated in Australia only in so far as any of the assets of the trust estate are, on the relevant date, situated in Australia. In determining the extent of the Australian assets, those liabilities of the trust estate not charged against particular assets should be apportioned over all the assets. The Committee can see no justification for imposing a tax on an asset merely because one or more of the trustees reside in Australia or for making the liability for tax depend on whether or not a trust estate has been fully administered.

24.C3. The rules contained in Article III of the estate duty convention between the United States and Australia provide a reasonable balance. The Committee therefore proposes the following rules, based on that convention:

  • (a) Immovable property (held otherwise than by way of security) should be deemed to be situated at the place where the land concerned is located.
  • (b) Tangible movable property (held otherwise than by way of security and other than property for which specific provision is made) and bank or currency notes and other forms of currency recognised as legal tender at the place of issue should be deemed to be situated at the place where that property or currency is located, or, if in transitu, at the place of destination.
  • (c) Debts (including bonds other than those referred to in (d), bills of exchange and promissory notes, whether negotiable or not), secured or unsecured and whether under seal or not, excluding the forms of indebtedness for which specific provision is made elsewhere in these recommendations, should be deemed to be situated at the place where the debtor is resident. However, if


      ― 484 ―
    the debtor, at the time when the debt is to be valued, has an established place of business in the country in which the owner of the debt was domiciled and the debts were incurred in carrying on the business of that establishment, the debts so incurred should be deemed to be situated in that country.
  • (d) Bonds, stocks, debentures, and other debts being securities, issued by any government, municipality or public authority should be deemed to be situated at the place where that government, municipality or public authority is located.
  • (e) Bank accounts should be deemed to be situated at the place where the bank or branch thereof, at which the account was kept, is located.
  • (f) Moneys, payable under a policy of insurance or under an annuity contract, whether under seal or not, should be deemed to be situated where the policy or annuity contract provides that the moneys are payable; or, if the policy or annuity contract does not provide where the moneys are payable:
    • (i) at the place of incorporation, in the case of a company; or
    • (ii) at the place of residence of the person by whom the moneys are payable, in any other case.
  • (g) A partnership should be deemed to be situated at the place where the business of the partnership is carried on, but only to the extent of the partnership business at that place.
  • (h) Ships and aircraft and shares thereof should be deemed to be situated at the place of registration of the ship or aircraft.
  • (i) Goodwill as a trade, business or professional asset should be deemed to be situated at the place where the trade, business or profession to which it pertains is carried on.
  • (j) Patents, trade-marks and designs should be deemed to be situated at the place where they are registered.
  • (k) Copyright, franchises, and rights or licences to use any copyrighted material, patent, trade-mark or design should be deemed to be situated at the place where the rights arising therefrom are exercisable.
  • (l) Rights or causes of action ex delicto surviving for the benefit of an estate of a deceased person should be deemed to be situated at the place where such rights or causes of action arose.
  • (m) Judgment debts should be deemed to be situated at the place where the judgment is obtained.
  • (n) Shares in a company should be deemed to be situated at the place where the company is incorporated.
  • (o) An interest in a trust estate, whether fully administered or otherwise, should be deemed to be situated in Australia only in so far as any of the trust assets are situated in Australia; provided that the liabilities of the trust estate which are not charged against any particular asset may, if the trustee so elects, be apportioned between the Australian and ex-Australian assets on the basis of their respective values but, if the trustee does not so elect, shall be treated as being charged against the ex-Australian assets.

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