Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon. Ralph Willis, M.P.)Note: References to paragraph numbers contained in the explanation of the Agreement relate to the relevant paragraph of the Article under discussion.
Main Features of the New DTA
Under the terms of the DTA with New Zealand:
Income from real property may be taxed in full by the country in which the property is situated. Income from real property includes natural resource royalties.
Business profits are to be generally taxed only in the country of residence of the recipient unless they are derived by a resident of one country through a branch or other prescribed 'permanent establishment' in the other country, in which case that other country may tax the profits.
Profits from international operations of ships and aircraft may be taxed only in the country of residence of the operator.
Dividends, interest and royalties may generally be taxed in both countries, but there are limits on the tax that the source country may charge on dividends, interest and royalties flowing to residents of the other country. These limits are, 15 per cent for dividends, 10 per cent for royalties and 10 per cent for interest.
Income, profits or gains from the alienation of property may be taxed in full by the country in which the property is situated. Subject to that rule and other specific rules in relation to business assets and some shares, capital gains are to be taxed in accordance with the domestic law of each country.
Income from professional services and other similar activities will generally be taxed only in the country of residence of the recipient. However, remuneration derived by a resident of one country in respect of professional services rendered in the other country may, where derived through a fixed base of the person concerned in that country, be taxed in the latter country.
Income from dependent personal services, that is, employee's remuneration, will generally be taxable in the country where the services are performed. However, where the services are performed during certain short visits to one country by a resident of the other country, the income will be exempt in the country visited.
Fringe benefits provided in relation to dependent personal services will, where they would otherwise be subject to tax in both countries, be taxable only in the country with the sole or primary taxing right over the employment income to which the benefit relates.
Government service remuneration paid by one country will generally be taxed only in that country. However, the remuneration may be taxed in the other country in certain circumstances where the government services are rendered in that other country.
Directors' fees and similar payments may be taxed in the country of residence of the paying company.
Income derived by entertainers and sportspersons may generally be taxed by the country in which the activities are performed. However, where the sportsperson is a member of, or associated with, a recognised team regularly playing in a league competition the income derived will generally be taxed in the country in which they reside.
Pensions and annuities (including government service pensions) may be taxed only in the country of residence of the recipient.
Income of visiting students will be exempt from tax in the country visited so far as concerns payments made from abroad for the purposes of their maintenance or education.
Profits of associated enterprises may be taxed on the basis of dealings at arm's length.
Exchange of information and consultation between the two taxation authorities is authorised by the DTA.
Dual residents (i.e., persons, including companies, who are residents of both Australia and New Zealand according to the domestic law of both countries) are, in accordance with specified criteria, to be treated for the purposes of the DTA as being residents of only one country.
Source rules are prescribed in the DTA to the effect that income, profits or gains derived by a resident of one country which, under provisions of the agreement may be taxed in the other country, shall be treated as being sourced in the latter country.
Double taxation relief for income which under the DTA may be taxed by both countries is required to be provided by the country of residence under the DTA as follows:-
- in Australia, by allowing a credit for the New Zealand tax against Australian tax payable on income derived by a resident of Australia from sources in New Zealand.
- in New Zealand by allowing a credit against New Zealand tax for the Australian tax paid on income, profits or gains derived by residents of New Zealand from sources in Australia.