ATO Interpretative Decision

ATO ID 2003/1082

Income Tax

Assessability of rental income received by Sri Lankan resident from real property situated in Australia
FOI status: may be released

This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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.

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 a non-resident taxpayer from real property located in Australia assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The rental income received by a non-resident taxpayer from real property located in Australia is assessable under subsection 6-5(3) of the ITAA 1997.

Facts

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

The taxpayer is a resident of Sri Lanka for income tax purposes.

The taxpayer owns real property situated in Australia.

The taxpayer receives rental income from that property.

Reasons for Decision

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year and other ordinary income that a provision includes as assessable income on some basis other than having an Australian source.

Rental income is ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

In determining liability to Australian tax, 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 ITAA 1997 so that those Acts are read as one.

Schedule 31 to the Agreements Act contains the double tax convention between Australia and the Democratic Socialist Republic of Sri Lanka (the Sri Lankan Agreement). The Sri Lankan Agreement operates to avoid double taxation of income received by Australian and Sri Lankan residents.

Article 6(1) of the Sri Lankan Agreement provides that income from real property may be taxed by the country in which the real property is situated.

Paragraph 23 of Taxation Ruling TR 2001/13 states that the phrase 'may be taxed' normally means the source country has a non-exclusive entitlement to tax the income. However, the country of residence of the taxpayer may also tax the income subject to the laws of that country, unless the double tax agreement explicitly prevents it.

Article 22(1) of the Sri Lankan Agreement provides that income derived by a resident of Sri Lanka which, under Article 6, may be taxed in Australia shall be deemed to be income from sources in Australia for Australian tax purposes.

Accordingly, the rental income received by a non-resident taxpayer from real property situated in Australia is assessable under subsection 6-5(3) of the ITAA 1997.

Date of decision: 12 November 2003

Year of income: Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(3)

International Tax Agreements Act 1953
   section 4
   Schedule 31
   Schedule 31, Article 6(1)
   Schedule 31, Article 22(1)

Related Public Rulings (including Determinations)
Taxation Ruling TR 2001/13

Keywords
Double tax agreements
International tax
Rental property income
Sri Lanka

Siebel/TDMS Reference Number: 3799616

Business Line: Public Groups and International

Date of publication: 28 November 2003

ISSN: 1445-2782

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