ATO Interpretative Decision

ATO ID 2002/35

Income Tax

• This ATO ID is correct. Note however that paragraph 128B(3)(gaa) of the Income Tax Assessment Act 1936 was repealed by Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Act 2005. This is a very minor amendment which does not change the outcome of the ATO ID.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is a non resident taxpayer assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) on Australian sourced franked dividends, unfranked dividends and interest?

Decision

No. A non resident taxpayer is not assessable under section 6-5 of the ITAA 1997 on Australian sourced franked dividends, unfranked dividends and interest.

Facts

The taxpayer is a non resident of Australia for income tax purposes.

The taxpayer receives Australian sourced franked dividends, unfranked dividends and interest.

Non resident withholding tax has been deducted from the unfranked dividends and interest.

Reasons for Decision

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non resident taxpayer includes all ordinary income derived directly or indirectly from all Australian sources and other ordinary income that a provision includes on some basis other than having an Australian source.

Section 6-15 of the ITAA 1997 provides that if an amount is exempt income, it is not assessable income. An amount is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law (section 6-20 of the ITAA 1997).

A non resident is liable for withholding tax on unfranked dividends and interest under subsections 128B(1) and (2) of the Income Tax Assessment Act 1936 (ITAA 1936).

Franked dividends paid to non residents are excluded from the withholding tax provisions under paragraphs 128B(3)(ga) and (gaa) of the ITAA 1936.

Section 128D of the ITAA 1936 provides that interest and dividends upon which withholding tax is payable shall not be included in the assessable income of a person. This section also provides that income upon which withholding tax would be payable but for the operation of paragraphs 128B(3)(ga) and (gaa) of the ITAA 1936 is also income which is not included in the assessable income of a person.

Income which is excluded from assessable income under section 128D of the ITAA 1936 is exempt income (section 11-10 of the ITAA 1997).

The franked dividends, unfranked dividends and interest received by the non resident taxpayer are exempt income and therefore not included in the taxpayer's assessable income pursuant to section 6-5 of the ITAA 1997.

Year of income:  Year ended 30 June 2000

Legislative References:
Income Tax Assessment Act 1936
   subsection 128B(1)
   subsection 128B(2)
   subsection 128B(3)(ga)
   subsection 128B(3)(gaa)
   section 128D

Related Public Rulings (including Determinations)
IT 2680

Keywords
Dividends
Interest income
Exempt income
Franked dividends
Non resident dividend withholding tax
Non resident interest withholding tax
Unfranked dividends
Withholding and indirect taxes
Withholding taxes

Business Line:  Small Business/Individual Taxpayers

Date of publication:  24 January 2002

ISSN: 1445-2782