ATO Interpretative Decision

ATO ID 2002/71

Income Tax

• This ATO ID was amended by replacing the reference to paragraph (2) of Article 24 to the tax treaty between Australian and New Zealand with paragraph (1) of Article 23 contained in the new tax treaty which took effect from 19 March 2010.
  This ATO ID was amended by removing references to repealed section 160AF and section 160AFE of the Income Tax Assessment Act 1936. Effective from 1 July 2007. This ATO ID is correct and can be relied upon.
  This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
  Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does rental income received from New Zealand form part of an Australian resident taxpayer's assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. As the taxpayer is a resident of Australia, they are required to include the rental income in their assessable income under section 6-5 of the ITAA 1997 but a foreign income tax offset will be available for the foreign tax paid.

Facts

The taxpayer is a resident of Australia for taxation purposes, and maintains a rental property in New Zealand.

The taxpayer receives rental income from that property.

Reasons for Decision

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

As the taxpayer is a resident of Australia the rental income forms part of their assessable income under section 6-5 of the ITAA 1997.

In determining liability to Australian tax on foreign sourced income it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).

Schedule 4 to the Agreements Act contains the double tax agreement between Australia and New Zealand (the New Zealand Convention). The New Zealand Convention operates to avoid the double taxation of income received by Australian and New Zealand residents.

Article 6 of the New Zealand Convention provides that the New Zealand taxation authorities may tax any rental income that is derived from a rental property situated in New Zealand and paid to a resident of Australia. The New Zealand Convention does not exclude the rental income from being taxable in Australia. The rental income may therefore be taxed in both countries.

Paragraph (1) of Article 23 of the New Zealand Convention provides that, subject to the provisions of the law of Australia, a credit for any tax paid in New Zealand will be allowed against Australian tax payable on income from New Zealand sources.

The New Zealand rental income received by the taxpayer forms part of their assessable income under section 6-5 of the ITAA 1997. If New Zealand tax is paid in relation to this rental income a foreign income tax offset will be allowed.

Legislative References:
Income Tax Assessment Act 1997
   section 6-5
   subsection 6-5(2)
   Division 770

Keywords
Double tax agreements
Double tax relief
Foreign income
foreign income tax offsets
Rental property
Rental property income

Business Line:  Small Business/Individual Taxpayers

Date of publication:  24 January 2002

ISSN: 1445-2782