House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Rt. Hon. Harold Holt.)

NOTES ON THE AGREEMENT

Introductory Note

The principal purpose of the taxation agreement between Australia and New Zealand is to place on a firm footing arrangements for the avoidance of double taxation on incomes flowing between the two countries.

In general, income derived by a resident of Australia from sources in New Zealand is subjected to New Zealand income tax. Except in the case of dividends, the Australian recipient is entitled to exemption from Australian tax on that income. Dividends received by an Australian shareholder in a New Zealand company are assessable income for Australian income tax purposes, even though taxed in New Zealand. Australia does, however, allow a credit offsetting the effects of the dual liability. Only in isolated cases are Australian residents called upon to pay double taxation imposed by Australia and New Zealand.

In the converse case, income, including dividends, derived by a New Zealand resident from Australian sources is subjected to Australian tax but is exempt from New Zealand tax. Stated broadly, double taxation is not imposed on income flowing from Australia to New Zealand.

Although double taxation by Australia and New Zealand has so far been avoided substantially by unilateral action by each country, the methods adopted do not conform with the more conventional procedures adopted by Australia in its agreements with the United Kingdom, the United States of America and Canada and by many other countries in international taxation agreements.

In the generality of cases, these agreements provide that specified classes of income flowing between countries shall be taxed only in the country in which the recipient resides. Income not subject to this arrangement is taxed in the country of its origin, while the country of residence, if it also taxes the income, allows a credit to relieve double taxation.

The agreement with New Zealand is in conformity with these international standards and establishes, for the first time, bilateral arrangements not subject to alteration by either party without due notice being given.

Briefly stated, the classes of income to be subjected to tax only in the country of residence are -

Business profits, unless the business is carried on through a branch or other permanent establishment in the country of origin of the income (Article III).

Remuneration of government officials of one country serving in the other country (Article VIII).

Royalties in respect of literary, dramatic, musical or artistic works in which copyright subsists, other than royalties in respect of motion picture or television films (Article IX).

Pensions and purchased annuities (Article X).

Remuneration for personal services performed for an employer in the country in which the recipient resides during visits to the other country not exceeding 183 days in the income year (Article XI).

Remuneration earned during a period of up to two years by a professor or teacher who is a resident of one of the countries for teaching in the other country (Article XII).

Under article V, shipping and air transport profits are to be taxed only by the country in which the recipient resides provided that the ship or aircraft is registered in that country.

The taxation of other classes of income by the country of origin of the income will not be altered by the agreement and existing exemptions in the country of residence will be continued. In cases where the income is taxed in both countries - for example, dividends paid to Australian residents by New Zealand companies - the agreement will preserve as a permanent feature the allowance of credits to relieve double taxation. Should any other classes of income become liable to double taxation in the future, the agreement will ensure the allowance of credits and in this respect the present agreement follows the provisions of other double taxation agreements entered into by Australia.

A further important feature of the agreement is the limitation of the tax payable on dividends distributed by companies in one country to shareholders resident in the other.

The profits out of which these dividends are paid are taxed in the country of their origin, which, under article VII, may also impose on the dividends tax not exceeding 15% of the dividends. This limitation, which is considered in greater detail in the notes on article VII, provides for New Zealand shareholders in Australian companies the same basis of taxation as applies under Australia's agreements with the United States of America and Canada. When the withholding tax on dividends paid by Australian companies to overseas investors comes into effect on 1st July, 1960, tax deductions from dividends paid to New Zealand residents will be at the 15% rate instead of the general rate of 30%.

The following are explanatory notes on each article of the agreement.

Article I

Paragraph (1) of this article specifies the Australian and New Zealand taxes which are the subject of the agreement.

In the case of Australia, the agreement will apply in relation to the income tax and social services contribution, which is the only tax at present imposed on incomes in this country. This tax includes the additional tax on the undistributed income of private companies and the withholding tax payable on dividends paid after 30th June, 1960, by companies resident in Australia to overseas investors.

The New Zealand taxes covered by the agreement are the income taxes payable by individuals and companies, including social security income tax and excess retention tax.

Paragraph (2) will automatically extend the agreement to any future tax imposed either by Australia or by New Zealand, if that tax is substantially similar in character to the taxes at present subject to the agreement.

Article II

Paragraph (1) of article II defines a number of expressions used in the agreement. The definitions calling for comment are -

"Australia": For the purposes of the Income Tax and Social Services Contribution Assessment Act, the Territories of Norfolk Island, Cocos (Keeling) Islands and Christmas Island are not regarded as part of Australia. However, tax may be payable in some circumstances on income derived in those Territories and is isolated cases both Australian and New Zealand tax may be levied, e.g., where the taxpayer is resident in both Australia and New Zealand. In order, therefore, that double taxation may be relieved in these cases, "Australia" has been defined in the agreement as including those Territories.

It is unnecessary to include the Territories of Papua and New Guinea, where a local income tax has been operative since 1st July, 1959.

As income tax is payable in Papua-New Guinea, a New Zealand resident is not required to pay New Zealand tax on income derived from those Territories. In consequence, double taxation of that income by Australia and New Zealand does not occur.

Double taxation of income derived by a resident of the Territories from New Zealand is relieved by the allowance under the Territory Ordinance of a credit for the New Zealand tax.

"Australian resident" and "New Zealand resident": For income tax purposes, an individual or company may at the one time be resident in more than one place. In the drafting of the agreement, it was accordingly necessary to recognise that a taxpayer may be a dual resident of both Australia and New Zealand.

Some provisions of the agreement could not appropriately be applied to residents of both countries. For example, the exemption from Australian tax under article XI of remuneration earned in Australia by a New Zealand businessman during a visit to Australia could not be justified if he were also a resident of Australia. It was accordingly necessary to employ in various provisions of the agreement terms which cover a taxpayer resident in one of the countries, but not also resident in the other country.

The terms "Australian resident" and "New Zealand resident" have been defined and used for the purpose of these provisions. An Australian resident means a resident of Australia who is not also resident in New Zealand. Correspondingly, a taxpayer who is a resident of Australia will not qualify as a New Zealand resident.

The effects of these definitions are carried through to the definitions of "Australian enterprise", "New Zealand enterprise", "enterprise of one of the contracting States" and "enterprise of the other contracting State". To fall within any of these terms, the enterprise must be carried on by a taxpayer not resident in both Australia and New Zealand.

"industrial or commercial profits": This expression means, broadly, business profits, as distinct from remuneration for personal services or investment income such as dividends, interest, rents or royalties. Shipping and air transport profits have also been placed outside the definition as they are the subject of special provisions in article V.

"permanent establishment": The application of important provisions of the agreement depends in part upon whether a taxpayer resident in one country carries on trade or business through a permanent establishment in the other country.

The expression "permanent establishment" has a wide coverage including not only branches, offices, workshops and factories, but also mines, quarries, oilwells, agricultural, pastoral and forestry properties, managements, certain agencies and any other fixed place of business.

In some cases an enterprise of one country may not set up a branch or other fixed place of business, but may carry out contracts involving the use or installation of plant or equipment, for example, the use of plant on, say, earth-moving projects or the installation of equipment in a factory. Activities of this nature will constitute a permanent establishment and when conducted in Australia it will be practicable to impose Australian tax on the profits arising through the permanent establishment. Correspondingly, New Zealand will be in a position to impose its tax on profits arising from similar activities in that country.

The definition sets out circumstances which are not, in themselves, to be regarded as constituting a permanent establishment. These are -

1.

The carrying on of business activities through certain agents and brokers who are remunerated merely by a customary rate of commission.

2.

The maintenance of a place of business used solely to effect purchases.

3.

The existence of a subsidiary company.

4.

The conduct of business through an agent not habitually negotiating and concluding contracts for his principals or through an agent who does not regularly carry a stock of goods from which orders are satisfied.

"resident of Australia": This expression is defined in the Assessment Act and it will have the same meaning for the purposes of the agreement. A "resident of Australia" may also be a resident of New Zealand and the expression is accordingly not identical with the defined term "Australian resident".

Paragraph (2) of this article relates to cases in which an enterprise of one of the countries sells goods manufactured, assembled, processed, packed or distributed in the other country by an associated enterprise. Where, for example, a New Zealand resident arranges for an associated enterprise to manufacture goods in Australia, profit arising from the manufacturing activities would generally be subject to Australian tax. Contracts may, however, be so arranged that the profit accrues to the New Zealand resident who, if he has no permanent establishment in Australia, would be exempt from Australian tax on the manufacturing profit. An enterprise which has entered into an arrangement of this nature will be deemed by paragraph (2) to have a permanent establishment in the country where the goods are manufactured, assembled, processed, packed or distributed. In consequence, the agreement will leave that country free to tax the profit having a source within its jurisdiction.

Paragraph (3) will ensure that in applying the agreement each country will give to terms not defined in the agreement the same meanings as they have in its own taxation laws.

Article III

This article relates to the taxation of industrial or commercial profits derived by a resident of one of the countries from trade or business carried on in the other country. The basic principles of the article correspond with provisions of Australia's existing agreements with the United Kingdom, the United States of America and Canada.

So far as Australia and New Zealand are concerned, the profits of a trade or business are, generally speaking, at present taxed in the country in which they have their source and are free of tax in the other country. For example, the profits derived by a resident of Australia are subjected to New Zealand tax to the extent that their source is in New Zealand and are, to the same extent, exempt from Australian tax.

There are, however, circumstances in which the New Zealand tax payable by an Australian resident is based upon an arbitrarily determined percentage of New Zealand sales. In these cases, New Zealand tax may be payable on an amount in excess of the profit that, for Australian income tax purposes, is regarded as having its source in New Zealand. In this event, Australia exempts only the amount of profit derived from sources in New Zealand and a part of the profits may accordingly be taxed both in New Zealand and in Australia.

Stated broadly, article III will ensure that an enterprise of one of the countries will not be required to pay tax in the other country on industrial or commercial profits unless it is engaged in trade or business through a permanent establishment in that other country. The double taxation which has arisen in the past in these cases will thus be avoided.

Where an enterprise of one country trades or carries on business through a permanent establishment within the other country, tax may be imposed by that other country only on income having its source in that country.

Under existing Australian and New Zealand income tax laws, the profits taxed in the country of their origin will be exempt from tax in the country where the recipient resides and there will accordingly be no double taxation of those profits. If, however, any income should in the future be subjected to double taxation, a credit providing appropriate relief will be allowable under article XIII.

Paragraph (1) of article III gives effect to these principles in the case of Australian enterprises engaged in trade or business in New Zealand. If the enterprise has no permanent establishment in New Zealand, industrial or commercial profits derived by it will be exempt from New Zealand tax. Australian tax will be payable on those profits.

This general principle does not, however, apply to the taxation of motion picture film rentals or the proceeds of insurance effected by New Zealand residents or on New Zealand property with insurers not resident in New Zealand. Profits in these categories will, as at present, be taxed under special provisions of the New Zealand law. The existing exemption of those profits by Australia will not be disturbed.

In the case of Australian enterprises trading or carrying on business through a permanent establishment in New Zealand, profits having their source in that country will be subject to New Zealand tax and the present Australian exemption will be preserved.

Paragraph (2) applies to profits derived by a New Zealand enterprise carrying on trade or business in Australia and follows the principles explained in the converse case covered by paragraph (1) of the article.

Briefly stated, a New Zealand enterprise will be entitled to exemption from Australian tax on its industrial or commercial profits derived in Australia unless it has a permanent establishment in Australia or those profits are taxed under the special Australian provisions governing the taxation of income from film businesses controlled abroad or insurance with non-residents. The profits exempt from Australian tax will be subject to tax in New Zealand.

On the other hand, a New Zealand enterprise operating through a permanent establishment in Australia, will pay Australian tax on income having its source in Australia. Under its present law, New Zealand will exempt this income from its tax. If, in the future, New Zealand should tax that income, a credit to relieve the double taxation will be allowed under article XIII.

Paragraph (3), which is similar to corresponding provisions in the United Kingdom, United States and Canadian agreements, states the principle upon which the profits attributable to a permanent establishment are to be determined. Broadly stated, the profit to be attributed to a permanent establishment will be the amount of profit which it might have been expected to derive if it were an independent enterprise in the country in which it is located and its dealings with its head office or other branches had been at arm's length. The main purpose of the paragraph will generally be to ensure that, for income tax purposes, a permanent establishment is debited by its head office and other branches with only those amounts that it would incur if it were an independent enterprise.

Paragraph (4) will apply where the information available is insufficient to enable the profits attributable to the permanent establishment to be ascertained on the basis authorised by paragraph (3). In such circumstances, the amount of profit to be subjected to tax will be determined by the taxation authority according to the relevant discretionary or estimating provisions of the law of the country concerned.

In the case of Australia, the Commissioner of Taxation will be free to invoke the provisions of section 136 of the Assessment Act. This provision applies where a business carried on in Australia is controlled principally by a non-resident or is carried on by a company that may be controlled from outside Australia. If such a business produces less taxable income than might be expected, tax may be assessed on so much of the receipts of the business as the Commissioner determines.

Paragraph (5) will ensure that profits from the sale of goods or merchandise are not attributable to a permanent establishment merely because the goods or merchandise are purchased in the country in which the permanent establishment is located. If, for example, an Australian company with a permanent establishment in New Zealand purchases goods in New Zealand and sells those goods in Australia, the profit derived on the sale will not be attributed to the permanent establishment in New Zealand. In these circumstances, profit on the sale will be exempt from New Zealand tax and the existing liability for Australian tax will continue.

The paragraph accords with the Australian practice where a non-resident of Australia purchases goods in this country and exports the goods in an unchanged form for sale overseas.

Article IV

This article is supplementary to paragraphs (3) and (4) of article III. As already explained, those provisions state the basis upon which profits are to be attributed to the permanent establishment of an enterprise.

Paragraph (1) proposes a corresponding basis for allocating profits where -

(a)

an Australian or New Zealand enterprise shares in the management, control or capital of an enterprise of the other country; or

(b)

persons participating in the management, control or capital of an Australian or New Zealand enterprise also participate in the management, control or capital of an enterprise of the other country.

The first of these tests would be satisfied where, for example, an Australian company incorporated a subsidiary company in New Zealand. The second test would be met, as between Australian and New Zealand companies, if the same persons shared, directly or indirectly, in the management, control or capital of both companies.

The article may, however, be invoked only if the commercial or financial arrangements between enterprises differ from those that might be expected to exist between independent enterprises that deal at arm's length.

Where these conditions are satisfied, paragraph (2) deems the profits of an enterprise to include the amount that the enterprise might have been expected to derive if its activities in conjunction with the other enterprise had been conducted on an arm's length basis with an independent undertaking.

Paragraph (4) relates to cases in which the information available is not sufficient to enable the application of an arm's length basis. In these circumstances, the Australian or New Zealand Commissioner of Taxation, as the case may be, will be entitled to apply discretionary or estimating provisions of the law he administers. In the case of Australia, such provisions are to be found in section 136 of the Assessment Act that has been considered in relation to paragraph (4) of article III.

The main effect of the article will be to enable appropriate allocations of profits to be made between inter-connected companies in Australia and New Zealand.

Article V

The practical effect of this article will be to exempt from New Zealand tax profits derived by an Australian resident from the operation of ships or aircraft registered in Australia. Correspondingly, Australian tax will not be payable on profits that a New Zealand resident earns from the operations of ships or aircraft registered in that country. In each case, the country in which the recipient of the profits resides will be free to impose its tax without giving rise to double taxation.

Where ships or aircraft are not registered in the country from which they are operated, the article will have no application. For example, ships operated by a New Zealand resident may be registered at an Australian port and it is not proposed that article V should affect the present taxation position in relation to the earnings of these ships. The provisions under which Australia taxes 5% of the moneys received from the carriage of passengers or freight shipped in Australia will continue to apply in relation to ships having an Australian port of registry. Correspondingly, the existing New Zealand exemption of the profits earned and taxed in Australia will not be disturbed by the agreement.

Article VI

By paragraph (1) of this article, dividends paid by New Zealand companies to persons not resident in Australia will be exempted from Australian tax. The article does not propose any change in the existing liability of residents of Australia to pay tax on dividends distributed by New Zealand companies.

Under the present law, dividends paid to non-residents of Australia, to the extent to which those dividends are paid out of profits having an Australian source, are assessable income. Where the company paying the dividend is a non-resident of Australia it is generally impracticable to collect the tax unless, in rare instances, the overseas shareholder has Australian assets against which payment of the tax can be enforced.

Paragraph (2) is complementary to the preceding paragraph and provides that dividends paid by Australian companies shall be exempt from New Zealand tax, except in the hands of a New Zealand resident.

The present New Zealand law subjects these dividends to tax when they are paid on shares on a New Zealand register of a company. Double taxation by Australia and New Zealand accordingly occurs. The proposed exemption by New Zealand will remove the double taxation while leaving Australia free to collect its tax.

Article VII

This article places a limitation on the amount of income tax payable on a dividend distributed by a company resident in Australia or New Zealand to a shareholder who is a resident of the other country.

Australian public companies are subjected to income tax of 6/6 in the Pd on the first Pd5,000 of taxable income and 7/6 in the Pd on the balance of the taxable income. In the case of private companies the rates are 4/6 in the Pd on the first Pd5,000 of taxable income and 6/6 in the Pd on the balance of the taxable income. Additional tax of 10/- in the Pd is payable by private companies on the undistributed amount ascertained after the retention allowances have been deducted from the distributable income.

Tax is also payable on dividends distributed to shareholders out of profits that have been taxed in the hands of the company. But for the provisions of article VII, a dividend withholding tax of 6/- in the Pd would apply to dividends paid by Australian companies to New Zealand residents after 30th June, 1960. In these circumstances the combined Australian taxes on public company profits and dividends paid out of those profits would, in some circumstances, approximate 11/3 in the Pd. This would comprise 7/6 for each Pd1 of company profit and 3/9 would represent tax on the dividend distributed out of the amount of 12/6 remaining after payment of the company tax.

In the case of dividends paid by Australian companies to residents of the United Kingdom, the United States of America or Canada the maximum combined rate of 11/3 in the Pd does not apply because existing agreements with those countries result in the rate of Australian tax on dividends being reduced to 15%. In the case of dividends paid to United Kingdom companies by wholly-owned Australian subsidiary companies, exemption from Australian tax is authorised by the agreement with the United Kingdom.

Paragraph (1) of article VII provides that in the case of dividends paid by Australian companies to New Zealand residents who are not engaged in trade or business through a permanent establishment in Australia, the Australian tax shall not exceed 15% of the dividend. This limitation of the maximum amount of tax on dividends will limit the combined Australian taxes on public company profits and dividends to a maximum of approximately 9/4 in the Pd. This step will ensure that the level of Australian taxes will be the same in the case of New Zealand shareholders as applies for shareholders residing in the United States of America and Canada. In the generality of cases, uniformity with United Kingdom shareholders will also be achieved.

Paragraph (2) of the article is a complementary provision limiting to 15% the rate of New Zealand tax that may be levied on dividends paid by New Zealand companies to Australian residents not engaged in trade or business in New Zealand through a permanent establishment in that country.

Dividends paid by New Zealand companies to Australian residents are at present taxed in New Zealand at rates of up to 7/- in the Pd. The dividends are also taxed in Australia, where a credit to relieve the double taxation is allowed. In the generality of cases the reduction of the New Zealand tax to 3/- in the Pd will result in a diminished credit and a consequent gain to Australian revenue. Where the amount of Australian taxable income is relatively small, a net saving to the shareholder may also be effected.

Article VIII

This article provides for the reciprocal exemption of the official remuneration of Australian and New Zealand government employees stationed in the other country. Where the employee is not ordinarily resident in the country where he renders services, or is resident there solely for the purpose of his official duties, his remuneration will be taxed only by the country which pays his remuneration. The article extends to the remuneration of employees of the State Governments of Australia.

The article will not apply in relation to employees of the Commonwealth or State Governments of Australia, or those of the New Zealand Government, who are engaged in any trade or business conducted by those Governments.

Article IX

Article IX will apply where royalties for the use, production or reproduction of literary, dramatic, musical or artistic works in which copyright subsists are derived by a resident of either Australia or New Zealand from sources in the other country. If a recipient of such a royalty is a resident of one of the countries and does not carry on business through a permanent establishment in the other country, the royalties will be taxed only in the country of residence.

Royalties in relation to motion picture and television films are specifically excluded from the article. As mentioned in relation to article III, the existing bases of taxing film rentals and income from motion picture films are not to be disturbed.

Royalties not falling within the scope of this article will be taxed in the country of their source and under the present laws of Australia and New Zealand exemption from tax will be provided by the country in which the recipient resides. If, in the future, that country should require tax to be paid, article XIII of the agreement will ensure the allowance of a credit to relieve the double taxation.

Article X

Under this article, a pension or purchased annuity derived by an Australian or New Zealand resident from a source in the other country will be exempt from tax in that country. This procedure accords with the corresponding provisions of Australia's existing agreements and enables the country in which the pensioner or annuitant resides to impose its tax without causing double taxation.

Annuities paid under a will or trust instrument are not covered by the article and the present practice of taxing them in the country of their origin will be preserved. Under present laws, the country in which the recipient resides will exempt the annuities from its tax.

Article XI

This article is designed to simplify taxation obligations in relation to remuneration derived by a resident of one of the countries during short business visits to the other country.

In general, remuneration for services rendered in Australia is subjected to Australian tax, while, with few exceptions, New Zealand imposes its tax on remuneration for services rendered in New Zealand. A businessman visiting either country may accordingly pay tax in one country on part of his remuneration, while the other country imposes its tax on the balance of the income. The same income is not, however, taxed in both countries.

In specified circumstances, article XI authorises exemption from tax in the country visited. This exemption is available where -

A.

The visit does not exceed 183 days during the income year involved.

B.

The remuneration is paid for services rendered to a resident of the country in which the taxpayer resides.

C.

The remuneration is subject to tax in the country in which the taxpayer resides.

The article will not exempt remuneration or other income derived by stage, motion picture, television or radio artists, musicians, athletes or other public entertainers.

Specific exemptions at present available to overseas visitors assisting in the development of Australian industry will not be disturbed by provisions of the agreement.

Article XII

Article XII relates to the remuneration of professors and teachers who are either Australian or New Zealand residents and who visit the other country in order to teach at an educational institution in that country for a period of up to two years. The article will exempt from tax in the country visited the remuneration received for the teaching during that period. The country in which the professor or teacher normally resides will, however, be free to impose its tax.

Article XIII

This article contains general provisions for the relief of double taxation on incomes taxed in both New Zealand and Australia.

As noted previously, some classes of income flowing between the two countries will be taxed only in the country in which the recipient resides, e.g., shipping and air transport profits. However, in the generality of cases, income will be taxed in the country in which it has its origin. If the country in which the recipient resides also imposes its tax, that country will provide relief from the double taxation.

Under its existing law, New Zealand does not tax income derived and taxed in Australia. Australia grants a corresponding exemption where income, other than dividends, has a source in New Zealand and is taxed in that country. In the case of dividends, Australia already allows a credit to relieve double taxation on dividends paid out of profits derived from sources outside Australia.

Under article XIII, Australia will continue the allowance of credits to relieve double taxation on dividends derived by Australian residents from sources in New Zealand.

As double taxation will not be imposed on other classes of income, the article will apply at this stage only in relation to dividends. If, however, circumstances should arise in which double taxation occurs, the article will require the country in which the recipient of the income resides to allow an appropriate credit.

Paragraph (1) places upon New Zealand the obligation to allow the credit in the case of its residents. Provisions governing the allowance of the credit may, however, be enacted in New Zealand.

Paragraph (2) provides the allowance, subject to the Australian laws, of a credit against Australian tax for New Zealand tax on income derived by an Australian resident from sources in New Zealand.

Paragraph (3) of the article specifies the circumstances in which it is to be applied. Under sub-paragraph (a), the source of remuneration for personal services is deemed to be the country in which the services are performed, thus enabling the country in which services are rendered to obtain its full measure of tax, while the country of residence, if it imposes tax at any time in the future, allows a credit to relieve the double taxation.

Sub-paragraph (b) deems film rentals and income from insurance effected by New Zealand residents or on New Zealand property with insurers not resident in New Zealand to have its source in New Zealand, where those classes of income are taxed under the special provisions of the New Zealand law mentioned in the notes on article III. New Zealand's prior right to tax these classes of income on the existing basis will not be disturbed.

Sub-paragraph (c) deems income taxed under corresponding provisions of the Australian income tax law relating to film businesses controlled abroad and insurance with non-residents of Australia to have its source in this country. The right of Australia to tax this income from these classes of activities carried on in Australia will accordingly be preserved and, should double taxation arise, the appropriate relief by way of credit will be allowed by New Zealand.

Sub-paragraph (d) excludes from the terms "Australian tax" and "New Zealand tax" amounts representing penalties or interest imposed under the respective taxing laws. The effect of this provision, which corresponds with similar provisions of the United Kingdom, United States and Canadian agreements, is that credit will not be allowed in respect of any amounts payable by way of additional tax imposed for breaches of the law.

Article XIV

Under the New Zealand income tax law, certain classes of income exempt from direct liability to tax are included in the total income of the taxpayer for the purpose of determining the rate of tax payable on the balance of the income. The amount of New Zealand tax payable is accordingly greater because of the receipt of the exempt income.

Article XIV will ensure that this procedure is not followed where a resident of Australia derives income exempt from New Zealand tax under the provisions of the agreement. The rate of New Zealand tax payable on the income subject to New Zealand tax will be ascertained without references to the exempt income.

Article XV

Since the income tax laws of both Australia and New Zealand contain prohibitions against the disclosure by officials of information concerning the affairs of taxpayers, this article is required to enable the respective taxation authorities to exchange information necessary for the effective operation of the agreement.

Only such information may be exchanged, however, as is necessary to carry out the provisions of the agreement or for the prevention of fraud or for the administration of the provisions of the laws of the respective countries against the avoidance of the taxes covered by the agreement. Except that it may be made available to a Court or reviewing authority in relation to appeals against assessments, the information exchanged will not be disclosed by the taxation authorities to other persons.

There will be no exchange under the agreement of any information which would disclose a trade secret or trade process.

Article XVI

This article will enable the taxation authorities of the two countries to communicate directly for the purpose of carrying out the provisions of the agreement. The provision will facilitate the administration of the agreement and will also ensure that information exchanged will be available only to taxation officials bound to maintain secrecy.

Article XVII

Paragraph (1) of this article provides that the agreement shall come into force when both countries have completed all the procedures necessary to give the agreement the force of law.

On coming into force, the agreement will commence to apply to Australian tax levied for the income year ending 30th June, 1960, and to New Zealand tax levied for the income year ended 31st March, 1960.

Under paragraph (2), the agreement will apply for an indefinite period. However, either country may give notice of termination on or before 30th September in any year after 1962. If notice of termination is given, the agreement will become ineffective in each country from the beginning of its next income year.