ATO Interpretative Decision

ATO ID 2002/312 (Withdrawn)

Income Tax

• This ATO ID is withdrawn. Guidance on the issue contained in this ATO ID can be found at Interests in foreign entities (QC 17031).
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is a dividend received from shares held in a New Zealand (NZ) company included in the taxpayer's assessable income under subsection 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. A dividend received from shares held in a NZ company is included in the taxpayer's assessable income under subsection 6-10(4) of the ITAA 1997.

Facts

The taxpayer is a resident of Australia for taxation purposes.

They own shares in a NZ company.

The taxpayer received a dividend from these shares from which NZ withholding tax was deducted at the rate of 15%.

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 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 those 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. Subsection 44(1) of the ITAA 1936 provides that the assessable income of a resident shareholder of a company (whether the company is a resident or a non resident) shall include dividends paid by the company out of profits derived by it from any source.

In determining liability to Australian tax on foreign source 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 ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

Schedule 4 to the Agreements Act contains the double tax convention between Australia and New Zealand (the NZ Convention Agreement). The NZ Convention operates to avoid the double taxation of income received by Australian and NZ residents.

Article 10 of the NZ Convention deals with dividends. Paragraph (1) of Article 10 provides that dividends paid by a NZ company to a resident of Australia may be taxed in Australia.

Paragraph (2) of Article 10 of the NZ Convention provides that NZ dividends may also be taxed in NZ but that the rate of tax is not to exceed 15%.

Paragraph (1) of Article 23 of the NZ Convention provides that, subject to the provisions of the law of Australia, a credit for any tax paid in NZ will be allowed against Australian tax paid on income from NZ sources.

The NZ dividends received by the taxpayer form part of their assessable income under subsection 6-10(4) of the ITAA 1997. As foreign tax has been paid in relation to this income a foreign income tax offset will be allowed..

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1936
   subsection 44(1)

Keywords
Foreign income tax offsets
Foreign income
Dividend income
Double tax agreements

Business Line:  Small Business/Individual Taxpayers

Date of publication:  28 March 2002

ISSN: 1445-2782