ATO Interpretative Decision
ATO ID 2010/92
Income Tax
Assessability of dividend income sourced in France received by an Australian resident individualFOI 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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Are French sourced dividends received by an Australian resident individual assessable under subsection 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The French sourced dividends received by an Australian resident individual are assessable under subsection 6-10(4) of the ITAA 1997. However, if the Australian resident has paid French income tax not exceeding 15% of the gross amount of the dividend income, they are entitled to claim a foreign income tax offset.
Facts
The taxpayer is an individual and a resident of Australia for taxation purposes.
The taxpayer receives dividends from French sources, which are treated as dividends for French tax law purposes.
The taxpayer does not carry on business through a permanent establishment in France.
Reasons for Decision
Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The assessable income of an Australian resident taxpayer includes statutory income from all sources, whether in or out of Australia (subsection 6-10(4) of the ITAA 1997).
Section 10-5 of the ITAA 1997 lists provisions about assessable income. Included in this list is subsection 44(1) of the Income Tax Assessment Act 1936 (ITAA 1936) which deals with dividends.
Paragraph 44(1)(a) of the ITAA 1936 provides that the assessable income of an Australian resident taxpayer, who is a shareholder of a company (whether the company is a resident or non-resident), includes dividends paid to the taxpayer by the company out of profits derived by it from any source. Section 44 of the ITAA 1936 goes on to state that the section does not apply to any part of the dividend if another provision (which expressly deals with dividends, such as sections 23AJ, 23AI, 23AK and 128D of the ITAA 1936) includes that part in, or excludes it from, the taxpayer's assessable income. However, in this case, there is no other provision which affects this dividend.
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 ITAA 1936 and the ITAA 1997 so that those Acts are read as one.
Schedule 11 to the Agreements Act contains the tax treaty between Australia and France (the 2006 French Convention) which came into force on 1 June 2009 and, by virtue of Article 30(1)(a)(ii), applies to dividends derived after 1 July 2010. The 2006 French Convention operates to prevent fiscal evasion and avoid double taxation of income received by Australian and French residents.
Article 10(1) of the 2006 French Convention provides that dividends paid by a company that is a resident of France, being dividends beneficially owned by a resident of Australia, may be taxed in Australia.
However, Article 10(2)(c) of the 2006 French Convention allows France to also tax such dividends, at a rate not exceeding 15%, where the beneficial owner of the dividends is an individual.
Hence, although the 2006 French Convention limits the rate of tax France can impose, it allows for this dividend income to be taxed by both countries. As the Convention does not prevent Australia taxing the dividend income received by the Australian resident individual, the dividend income is assessable in Australia under subsection 6-10(4) of the ITAA 1997.
Year of income: Year ended 30 June 2011
Legislative References:
Income Tax Assessment Act 1936
section 23AJ
section 23AI
section 23AK
section 128D
subsection 44(1)
paragraph 44(1)(a)
section 6-10
subsection 6-10(4)
section 10-5
Division 770 International Tax Agreements Act 1953
section 4
Schedule 11
Schedule 11, Article 10(1)
Schedule 11, Article 10(2)(c)
Schedule 11, Article 23(1)
Schedule 11, Article 30(1)(a)(ii)
Keywords
Dividend income
Double tax agreements
Foreign income
Foreign source income
France
International tax
ISSN: 1445-2782