ATO Interpretative Decision

ATO ID 2004/606 (Withdrawn)

Income Tax

• ATO ID 2004/606 is to be withdrawn because it contains references to the Article 11 of the tax treaty between Australia and South Africa that was amended by the protocol to the tax treaty (Schedule 42A) which entered into force on 12 November 2008. Despite its withdrawal, the ATO ID continues to be a precedential view for tax periods starting before 1 January 2009.

  This ATO ID has been amended to remove references in the Reasons for Decision to repealed legislation dealing with foreign tax credit rules. With effect from 1 July 2008 the foreign tax credit system will be replaced by the foreign tax offset system.

  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the South African sourced 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 South African 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 South African sources.

Reason 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 (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 42 to the Agreements Act contains the tax treaty between Australia and the Republic of South Africa (South African Agreement). The South African Agreement operates to avoid the double taxation of income received by Australian and South African residents.

Article 11(1) of the South African Agreement provides that interest income arising in South Africa, being interest to which a resident of Australia is beneficially entitled, may be taxed in Australia.

Article 11(2) of the South African Agreement provides that the interest may also be taxed in South Africa, but the rate of tax shall not exceed 10 per cent of the gross amount of interest.

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

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 South African tax is paid in relation to the interest, a foreign tax credit will be allowed. However, the amount of South African 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.

Year of income:  Year ended 30 June 1998 Year ended 30 June 1999 Year ended 30 June 2000 Year ended 30 June 2001 Year ended 30 June 2002 Year ended 30 June 2003

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

Keywords
Double tax agreements
Foreign income
Foreign tax
Foreign tax credit
Interest income
International tax
South Africa

Business Line:  Public Groups and International

Date of publication:  23 July 2004

ISSN: 1445-2782