Explanatory Memorandum(Circulated by the Treasurer, the Rt. Hon. William McMahon).
Income Tax (International Agreements) Bill 1969
The main purposes of this Bill are:
- to give the force of law in Australia to comprehensive double taxation agreements between Australia and Singapore and Australia and Japan which were signed in Canberra on 11 February 1969 and 20 March 1969 respectively (an outline of the agreement with Singapore is at pages 4 to 17 of this memorandum, and of the agreement with Japan at pages 18 to 30) - Clause 4;
- to give the force of law to an agreement between Australia and France for the avoidance of double taxation of income derived from international air transport which was signed in Canberra on 27 March 1969 (this agreement is outlined at pages 31 and 32) - Clause 4;
- to specify that interest and royalties derived by residents of Australia from Singapore or Japan and in respect of which the overseas tax is limited by the agreements to 10 per cent will not, by reason of the payment of Singapore or Japanese tax, be exempt from Australian tax (credit for the overseas tax will be allowed against the Australian tax on the interest and royalties) - Clause 5.
Notes on the clauses of the Bill are given below and these are followed by explanations of the articles of each agreement.
INCOME TAX (INTERNATIONAL AGREEMENTS) BILL 1969.
This clause formally provides for the short title and citation of the Amending Act and of the Principal Act as amended.
Section 5(1A.) of the Acts Interpretation Act 1901-1966 provides that unless the contrary intention appears every Act shall come into operation on the twenty-eighth day after the day on which the Act receives the Royal Assent. By this clause the Amending Act will come into operation on the day on which it receives the Royal Assent.
Section 3 of the Principal Act contains a number of definitions for the more convenient interpretation of the Act. Paragraphs (b) and (c) of this clause will insert in section 3 formal definitions of the Singapore, Japanese and French agreements which are being incorporated as Schedules to the Principal Act by clause 6 of the Bill. Paragraph (a) will formally provide that references to a 'calendar year' are to mean a year commencing on 1st January.
Paragraph (d) of clause 3 proposes the insertion of a new sub-section - sub-section (7.) - in section 3 of the Principal Act. This sub-section provides that, unless the contrary intention appears, in the English text of the Japanese agreement, words in the singular include the plural and words in the plural include the singular. This provision is normally made in an agreement itself but, as the Japanese language does not have singular and plural forms of expression, the provision would have had no meaning in the Japanese text.
This clause proposes the insertion in the Principal Act of three sections - sections 7, 8 and 9 - which will respectively give the force of law in Australia to the agreements with Singapore, Japan and France. Each agreement will be given the force of law with effect from the times indicated in the agreement itself (see explanations of article 21 of the Singapore agreement, article 22 of the Japanese agreement and article 4(1.) of the French agreement).
Consistently with article 21 of the Singapore agreement and article 22 of the Japanese agreement each agreement will, on Assent being given to the Bill, have effect -
- in respect of dividends or interest subject to withholding tax that are derived on or after 1 July 1969; and
- in respect of other income, for any year of income beginning on or after 1 July 1969.
In keeping with article 4(1.) of the French agreement, that agreement is to have effect for purposes of Australian tax for the 1966/67 and subsequent years of income.
Sub-section (2.) of the proposed new section 8 is a technical provision. It relates to paragraph 5 of the protocol to the Japanese agreement. In broad terms, that paragraph permits certain areas of Australia's continental shelf to be treated, for purposes of the agreement, as if they were part of Australia, provided Australian tax law is in force in relation to them. The new sub-section states that section 6AA of the Income Tax Assessment Act, which deals with Australia's taxing rights as to activities on the continental shelf, is to be taken as a provision under which Australian tax law is in force in relation to the areas.
Sub-section (3.) of section 8 and sub-section (2.) of section 9 provide for the notification in the Gazette of the dates on which the Japanese and French agreements enter into force. The purpose of these provisions is to provide a readily available and authoritative source from which persons generally may ascertain the fact and date of entry into force of these agreements. Because of the manner in which, under the terms of the Japanese and French agreements, those agreements will enter into force, it is not possible to indicate in this Bill the dates of entry into force of those agreements.
Each agreement will continue to have the force of law until it ceases to be effective in accordance with a notice of termination given by either country under article 22 of the Singapore agreement, article 23 of the Japanese agreement or article 4(2.) of the French agreement.
The primary purpose of this clause is, in effect, to apply the credit system of relief of double taxation to interest and royalties that are derived by residents of Australia from Singapore or Japan and in respect of which under the respective agreements, Singapore or Japanese tax is limited to 10 per cent. The Principal Act already contains corresponding provisions in relation to interest or royalties, derived by residents of Australia from the United Kingdom, which are subject to reduced United Kingdom tax under the new agreement with that country that was signed on 7 December 1967.
The clause will ensure that section 23(q) of the Income Tax Assessment Act - which provides an exemption from Australian tax for foreign-source income (other than dividends) taxed in the country of source - is not to apply to interest or royalties derived (either directly or through a trustee) by a resident of Australia from Singapore or Japan during income years commencing on or after 1 July 1969 where, under the agreements, the Singapore tax or the Japanese tax on that income is limited to 10 per cent of the gross amount of the income. The interest and royalties will then be assessable income for income tax purposes to the extent provided by the general provisions of the Assessment Act and the agreements will require a credit for the Singapore or Japanese tax to be allowed against the Australian tax on the interest and royalties. Existing sections 14 and 15 of the Principal Act will govern the allowance of credit for the Singapore or Japanese tax.
Paragraph (a) of clause 5 effects a formal drafting amendment.
Paragraph (b) will insert two new paragraphs - paragraphs (aa) and (ab) - in section 12(1.) of the Principal Act which sets out classes of income to which the exemption under section 23(q) of the Income Tax Assessment Act does not apply.
The new paragraph (aa) will ensure that interest and royalties derived (either directly or through a trustee) by an Australian resident from Singapore, and subject to Singapore tax not exceeding 10 per cent of the gross amount, are not to be exempt from Australian tax. This will apply in respect of such income derived during income years commencing on or after 1 July 1969.
The new paragraph (ab) will serve a similar purpose as regards such income derived from Japan. On the assumption that the Japanese agreement will, as is expected, enter into force during the 1969 calendar year, the new provision will apply to income derived during income years commencing on or after 1 July 1969.
This clause will include a copy of each of the three agreements mentioned as a Schedule - the Fifth, Sixth and Seventh Schedules - to the Principal Act.