ATO Interpretative Decision
ATO ID 2005/241
Income tax
Assessability of Australian sourced interest income received by a resident of the PhilippinesFOI status: may be released
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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 resident of the Philippines 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 resident of the Philippines 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 resident of the Philippines for income tax purposes.
The taxpayer is a non resident of Australia for income tax purposes.
The taxpayer receives interest income from Australian sources.
Reasons for Decision
Subsection 6-5(3) of the ITAA 1997 provides that a non resident's assessable income includes ordinary income derived directly or indirectly from Australian sources, during the income year.
Interest income is ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.
Section 6-15(3) of the ITAA 1997 provides that if an amount is non-assessable non-exempt income then it is not assessable income.
Section 11-55 of the ITAA 1997 provides a list of non-assessable non-exempt income provisions. 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.
Interest withholding tax is payable on interest derived by non-residents under subsection 128B(2) of the ITAA 1936.
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 ITAA 1936 and the ITAA 1997 so that those Acts are read as one.
Schedule 14 to the Agreements Act contains the tax treaty between Australia and the Republic of the Philippines (the Philippine Agreement). The Philippine Agreement operates to avoid double taxation of income received by Australian and Philippine residents.
Article 11(1) of the Philippine Agreement provides that interest income arising in Australia to which a resident of the Philippines is beneficially entitled, may be taxed in the Philippines.
Article 11(2) of the Philippine Agreement provides that such interest income may be taxed in Australia, but the tax so charged shall not exceed 15 per cent of the gross amount of the interest.
The interest income will be subject to withholding tax at the rate of 10% on the gross amount of interest derived in Australia.
The interest income received by the non resident taxpayer is not assessable under subsection 6-5(3) of the ITAA 1997 as section 128D of the ITAA 1936 applies.
Accordingly, the interest income 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: 4 August 2005Year of income: Year ended 30 June 2005
Legislative References:
Income Tax Assessment Act 1936
subsection 128B(2)
section 128D
subsection 6-5(3)
section 6-15
section 11-55 International Tax Agreements Act 1953
section 4
Schedule 14
Schedule 14, Article 11(1)
Schedule 14, Article 11(2)
Keywords
Double tax agreements
Interest income
International tax
Non resident interest withholding tax
Philippines
Withholding taxes
ISSN: 1445-2782