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ATO Interpretative Decision

ATO ID 2004/347

Income Tax

Assessability of interest income sourced in France received by an Australian resident individual
FOI status: may be released

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 French sourced interest income received by an Australian resident individual assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The French sourced interest income received by an Australian resident individual is assessable under subsection 6-(2) of the ITAA 1997.

Facts

The taxpayer is a resident of Australia for taxation purposes.

The taxpayer receives interest income from French sources.

Reasons for Decision

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Interest income is ordinary income for the purposes of subsection 6-5(2) 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).

Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that those Acts are read as one.

Schedule 11 to the Agreements Act contains the double tax convention between Australia and the France (the French Agreement). Schedule 11A to the Agreements Act contains the protocol amending the French Agreement (the Protocol). The French Agreement and the Protocol operate to avoid double taxation of income received by Australian and French residents.

Article 10(1) of the French Agreement provides that interest income arising in France, being interest to which a resident of Australia is beneficially entitled, may be taxed in France but the rate of tax shall not exceed 10 per cent of the gross amount of the interest.

Article 23(1) of the French Agreement provides that a credit against Australian tax will be allowed for any tax paid in France (in accordance with the law of Australia) where tax has been paid under French law and in accordance with the French Agreement.

Subsection 160AF(1) of the ITAA 1936 provides that where the assessable income of a resident contains foreign sourced income and foreign tax has been paid on that income, a foreign tax credit will be allowed. The foreign tax credit allowed against Australian income tax is the lesser of:

•
the amount of that foreign tax paid, reduced in accordance with any relief available to the taxpayer under the law relating to that tax, and
•
the amount of Australian tax payable in respect of the foreign income.

As the taxpayer is an Australian resident, the interest income forms part of their assessable income under subsection 6-5(2) of the ITAA 1997. If French tax is paid in relation to this interest, a foreign tax credit will be allowed. However, the amount of French tax that may be considered for a credit under the foreign tax credit provisions is limited to 10 percent of the gross amount of interest.

Note: If the French tax is less than the Australian tax that will be payable then the taxpayer will be entitled to a full credit for the French tax paid. Where the French tax paid is greater than the Australian tax payable, the taxpayer is only entitled to a credit equal to the value of the Australian tax payable and cannot recover any excess French tax paid. However, under section 160AFE of the ITAA 1936, any excess foreign tax credit can be carried forward for a maximum of five years for application against any future tax payable on the taxpayer's foreign income of the same class.

Date of decision:  6 April 2004

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1936
   subsection 160AF(1)
   section 160AFE

Income Tax Assessment Act 1997
   subsection 6-5(2)

International Tax Agreements Act 1953
   Section 4
   Schedule 11
   Schedule 11, Article 10(1)
   Schedule 11, Article 23(1)
   Schedule 11A

Keywords
Double tax agreements
Foreign income
Foreign tax
Foreign tax credit
France
Interest income
International tax

Business Line:  Public Groups and International

Date of publication:  23 April 2004

ISSN: 1445-2782

history
  Date: Version:
You are here 6 April 2004 Original statement
  6 November 2009 Archived

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