ATO Interpretative Decision
ATO ID 2003/855
Income Tax
Assessability of Australian sourced interest income received by a UK residentFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the Australian sourced interest income received by a United Kingdom (UK) resident taxpayer assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The Australian sourced interest income received by a UK resident taxpayer is not assessable under subsection 6-5(3) of the ITAA 1997 as it is exempt from tax under section 128D of the Income Tax Assessment Act 1936 (ITAA 1936).
Facts
The taxpayer is a UK resident and a non-resident of Australia for income tax purposes.
The taxpayer derives interest income from Australian sources.
Reasons for Decision
Subsection 6-5(3) of the ITAA 1997 provides that the assessable of income of a non-resident taxpayer includes ordinary income derived directly or indirectly from Australian sources, as well as other ordinary income included by a provision on a basis other than having an Australian source.
Interest is ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.
Section 6-15 of the ITAA 1997 provides that if an amount is exempt income then 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 (subsection 6-20(1) of the ITAA 1997).
Section 11-10 of the ITAA 1997 lists provisions about exempt income. Included in this list is section 128D of the ITAA 1936.
Section 128D of the ITAA 1936 provides that interest upon which withholding tax is payable shall not be included in assessable income.
A non-resident is liable for withholding tax on interest under subsection 128B(2) of the ITAA 1936.
Section 7 of the Income Tax (Dividends, Interest and Royalties Withholding Tax) Act 1974 provides that the rate of withholding tax on interest paid to non residents is generally 10%.
The taxpayer is a resident of the UK, a country with which Australia has entered into a double tax agreement. Therefore, the double tax agreement between Australia and the UK and the protocol to that agreement (the UK Agreement) contained in Schedules 1 and 1A to the International Tax Agreements Act 1953 (the Agreements Act) must be considered in determining whether the interest income derived by the taxpayer is taxable in Australia.
Sections 5 and 5A of the Agreements Act give the UK Agreement the force of law in Australia.
Section 4 of the Agreements Act provides that the ITAA 1936 and the ITAA 1997 must be read as one with the Agreements Act. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited situations).
Article 9(2) of the UK Agreement provides that income tax on interest derived and beneficially owned by a UK resident shall not exceed 10% of the gross amount of interest.
The taxpayer will liable for 10% withholding tax on the gross amount of interest derived from Australia.
The interest received by the non resident taxpayer is not assessable under subsection 6-5(3) of the ITAA 1936 as section 128D of the ITAA 1936 applies.
Accordingly, the interest received from Australian sources will not form part of the taxpayer's assessable income under subsection 6-5(3) of the ITAA 1997.
Date of decision: 7 August 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1936
subsection 128B(2)
section 128D
subsection 6-5(3)
section 6-15
subsection 6-20(1)
section 11-10 Income Tax (Dividends, Interest and Royalties Withholding Tax) Act 1974
section 7 International Tax Agreements Act 1953
section 4
section 5
section 5A
Schedule 1
Schedule 1, Article 9(2)
Schedule 1A Related ATO Interpretative Decisions
ATO ID 2003/854
Keywords
Double tax agreements
Exempt income
Foreign income
Interest income
United Kingdom
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 7 August 2003 | Original statement |
| 8 February 2008 | Archived |