ATO Interpretative Decision

ATO ID 2005/302

Income tax

Assessability of Australian rental income derived by a resident of the United States
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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 income derived from a rental property in Australia by a resident of the United States assessable income under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The income derived from a rental property in Australia by a resident of the United States is assessable under subsection 6-5(3) of the ITAA 1997.

Facts

The taxpayer is a resident of the United States for taxation purposes.

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

The taxpayer owns real property in Australia from which they derive rental income.

Reasons for Decision

Under subsection 6-5(3) of the ITAA 1997, the assessable income of a non-resident taxpayer includes:

(a): ordinary income derived directly or indirectly from all Australian sources during the income year; and
(b): other ordinary income that a provision includes as assessable income on some basis other than having an Australian source.

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

In determining liability to Australian tax on income received by a non resident, it is necessary to consider not only the income tax laws but 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 1997, so that these Acts are read as one.

Schedule 2 to the Agreements Act contains the double tax agreement between Australia and the United States (the United States Convention). Schedule 2A of the Agreements Act contains the protocol amending the United States Convention (the United States Protocol). The United States Agreement and United States Protocol operate to avoid double taxation of income received by Australian and United States residents.

Article 6(1) of the United States 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 taxpayer's country of residence may also tax the income subject to the laws of that country, unless the double tax agreement explicitly prevents it.

Article 27(1)(a) of the United States Agreement provides that income derived by a resident of the United States which, under Article 6(1), may be taxed in Australia, shall be deemed to be income from sources in Australia for Australian tax purposes.

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

Date of decision: 11 October 2005

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

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

International Tax Agreements Act 1953
   section 4
   Schedule 2, Article 6(1)
   Schedule 2, Article 27(1)(a)

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

Related ATO Interpretative Decisions
ATO ID 2004/589

Other References:
OECD Model Tax Convention on Income and Capital

Keywords
Double tax agreements
International tax
Rental property income
United States

Siebel/TDMS Reference Number: 4761601

Business Line: Public Groups and International

Date of publication: 28 October 2005

ISSN: 1445-2782

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