ATO Interpretative Decision
ATO ID 2004/350
Income Tax
Assessability of interest income sourced in Sweden received by an Australian resident individualFOI status: may be released
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This ATO ID has been amended to remove references in the Reasons for Decision to repealed legislation dealing with foreign tax credit rules.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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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.
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 Swedish sourced interest income received by an Australian resident individual assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The Swedish sourced interest income received by an Australian resident individual is assessable under subsection 6-5(2) of the ITAA 1997.
Facts
The taxpayer is a resident of Australia for tax purposes.
The taxpayer received interest income from sources in Sweden.
The taxpayer paid foreign tax in excess of 10% of the gross interest received.
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 during the income year.
Interest 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 ITAA 1997 so that those Acts are read as one.
Schedule 17 to the Agreements Act contains the double tax agreement between Australia and Sweden (the Swedish Agreement). The Swedish Agreement operates to avoid the double taxation of income received by Australian and Swedish residents.
Article 11(1) of the Swedish Agreement provides that interest arising in Sweden, being interest to which a resident of Australia is beneficially entitled, may be taxed in Australia.
Article 11(2) of the Swedish Agreement provides that the interest may also be taxed in Sweden but the rate of tax is limited to 10 per cent of the gross amount.
Article 24(1) of the Swedish Agreement provides that a credit against Australian tax for Swedish tax paid shall be allowed (in accordance with the law of Australia) where tax has been paid under Swedish law and in accordance with the Swedish Agreement.
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.
As the taxpayer is a resident of Australia, the interest income forms part of their assessable income under subsection 6-5(2) of the ITAA 1997. As Swedish tax has been paid in relation to this interest, a foreign tax credit will be allowed.
Date of decision: 7 April 2004Year of income: Year ended 30 June 2001
Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(2)
section 4
Schedule 17
Schedule 17, Article 11(1)
Schedule 17, Article 11(2)
Schedule 17, Article 24
Keywords
Double tax agreements
Foreign tax credits
Foreign income
Interest income
Sweden
ISSN: 1445-2782
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