ATO Interpretative Decision

ATO ID 2004/544

Income Tax

Assessability of interest income sourced in the United States (US) received by a resident individual
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This ATOID has been amended to remove references in the Reasons for Decision to repealed legislation dealing with foreign tax credit rules.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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 US sourced interest income received by a resident individual assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The US sourced interest income received by a resident individual is assessable under subsection 6-5(2) of the ITAA 1997.

Facts

The taxpayer is a resident of Australia for taxation purposes.

The taxpayer receives interest income from US sources.

Reasons for Decision

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, 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 (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 2 to the Agreements Act contains the double tax treaty between Australia and the US (US Convention). The US Convention operates to avoid the double taxation of income received by Australian and US residents.

Article 11(1) of the US Convention provides that interest from sources in the US, to which a resident of Australia is beneficially entitled, may be taxed in Australia.

Article 11(2) of the US Convention provides that interest income may also be taxed in the US. However, the tax shall not exceed 10 per cent of the gross amount of the interest.

Article 22(2) of the US Convention provides that a credit against Australian tax for tax paid in the US shall be allowed (in accordance with the law of Australia) where tax has been paid under US law and in accordance with the US Convention.

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. If US tax is paid in relation to this interest income, the taxpayer will be entitled to a foreign income tax offset under Division 770 of the ITAA 1997..

Date of decision: 20 May 2004

Year of income: Year ended 30 June 2001

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

International Tax Agreements Act 1953
   Section 4
   Schedule 2
   Schedule 2, Article 11(1)
   Schedule 2, Article 11(2)
   Schedule 2, Article 22(2)

Keywords
Double tax agreements
Foreign income
Interest income
United States

Siebel/TDMS Reference Number: 3946514

Business Line: Public Groups and International

Date of publication: 2 July 2004

ISSN: 1445-2782

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).