ATO Interpretative Decision

ATO ID 2004/349 (Withdrawn)

Income Tax

Assessability of dividend income sourced in France received by an Australian resident individual
FOI status: may be released

This ATO ID is withdrawn as former section 160AF of the ITAA 1936 has been repealed. With effect from 1 July 2008 the foreign tax credit system is replaced by the foreign income tax offset system. Despite its withdrawal, this ATO ID continues to be a precedential view in respect of decisions relating to these former provisions for income years up to, and including, the 2007-08 income year. Further, the position stated in this ATO ID in relation to the application of the French Agreement does not apply from 1 July 2010 as a new tax treaty with France will have effect. This ATO ID is replaced by ATO ID 2010/92

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

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.

Facts

The taxpayer is a resident of Australia for taxation purposes.

The taxpayer receives dividends from French sources.

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 list 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.

Paragraph 44(1)(a) of the ITAA 1936 provides that, subject to certain provisions, 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.

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 double tax convention between Australia and the France (the French Agreement). Schedule 11A to the Agreements Act contains the protocol amending the French Agreement (the Protocol). The French Agreement and the Protocol operate to avoid double taxation of income received by Australian and French residents.

Article 9(2) of the French Agreement provides that dividends paid by a company that is domiciled in France, being dividends to which a resident of Australia is beneficially entitled, may be taxed in France but the tax rate shall not exceed 15 per cent of the gross amount of the dividends.

Article 23(1) of the French Agreement provides that a credit against Australian tax for tax paid in France shall be allowed (in accordance with the law of Australia) where French tax has been paid in accordance with the French Agreement. However, in the case of a dividend, no credit is allowable for tax paid in respect of the profits out of which the dividend is paid.

Subsection 160AF(1) of the ITAA 1936 provides that where the assessable income of a resident contains foreign sourced income and foreign tax has been paid on that income, a foreign tax credit will be allowed. The foreign tax credit allowed against Australian income tax is the lesser of:

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

As the taxpayer is a resident of Australia, the dividend income forms part of their assessable income under subsection 6-10(4) of the ITAA 1997. If French tax is paid in relation to this dividend income, a foreign tax credit will be allowed.

Note: If the French tax is less than the Australian tax that will be payable then the taxpayer will be entitled to a full credit for the French tax paid. Where the French tax paid is greater than the Australian tax payable, the taxpayer is only entitled to a credit equal to the value of the Australian tax payable and cannot recover any excess French tax paid. However, under section 160AFE of the ITAA 1936, any excess foreign tax credit can be carried forward for a maximum of five years for application against any future tax payable on the taxpayer's foreign income of the same class.

Date of decision: 6 April 2004

Year of income: Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1936
   subsection 44(1)
   paragraph 44(1)(a)
   subsection 160AF(1)
   section 160AFE

Income Tax Assessment Act 1997
   section 6-10
   subsection 6-10(4)
   section 10-5

International Tax Agreements Act 1953
   section 4
   Schedule 11
   Schedule 11, Article 9(2)
   Schedule 11, Article 23(1)
   Schedule 11A

Keywords
Dividend income
Double tax agreements
Foreign income
France

Business Line: Public Groups and International

Date of publication: 23 April 2004

ISSN: 1445-2782

history

	Date:	Version:
	6 April 2004	Original statement
You are here	30 April 2010	Archived

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