ATO Interpretative Decision

ATO ID 2003/1079

Income Tax

Assessability of rental income received from real property situated in the People's Republic of China
FOI status: may be released

This ATOID has been amended to remove references in the Reasons for Decision to repealed legislation dealing with foreign tax credit rules.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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 rental income received by an Australian resident taxpayer from real property situated in the People's Republic of China (China), assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The rental income received by an Australian resident taxpayer from real property situated in China is assessable under subsection 6-5(2) of the ITAA 1997.

Facts

The taxpayer is a resident of Australia for income tax purposes.

The taxpayer owns real property that is situated in China.

The taxpayer receives rental income from that property.

Reasons for Decision

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

Rental 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 28 to the Agreements Act contains the double tax agreement between Australia and China (the Chinese Agreement). The Chinese Agreement operates to avoid the double taxation of income received by Australian and Chinese residents.

Article 6 of the Chinese Agreement provides that rental income from real property situated in China may be taxed in China. The Chinese Agreement does not exclude the rental income from being taxable in Australia. Therefore, the rental income may be taxed in Australia and China.

Article 23(2) of the Chinese Agreement provides that, subject to the provisions of the law of Australia, a credit for any tax paid in China will be allowed against Australian tax payable on income from Chinese sources.

As the taxpayer is a resident of Australia for tax purposes, the rental income received from real property situated in China is assessable under subsection 6-5(2) of the ITAA 1997. If tax is paid in China in relation to the rental income, the taxpayer will be entitled to a foreign income tax offset under Division 770 of the ITAA 1997.

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

Date of decision: 10 October 2003

Year of income: Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006 Year ended 30 June 2007 Year ended 30 June 2008

Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(2)
Division 770

International Tax Agreements Act 1953
   section 4
   Schedule 28
   Schedule 28, Article 6
   Schedule 28, Article 23(2)

Keywords
China
Double tax agreements
Foreign income
Foreign income tax offsets
International tax
Rental property income

Siebel/TDMS Reference Number: 3742796

Business Line: Public Groups and International

Date of publication: 28 November 2003

ISSN: 1445-2782

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