ATO Interpretative Decision

ATO ID 2006/70

Income Tax

Assessability of interest income received from the Netherlands
FOI status: may be released

This ATOID has been amended by the inclusion of an additional fact to clarify the ATO view.
This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 interest income received from the Netherlands by a resident taxpayer assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The interest income received from the Netherlands by a resident taxpayer is assessable income 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 Netherlands sources.

The taxpayer does not carry on business through a permanent establishment in the Netherlands.

Tax is withheld on the interest income in the Netherlands.

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 tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one.

Schedule 10 to the Agreements Act contains the tax treaty and the protocol between Australia and the Kingdom of the Netherlands (the Netherlands Agreement). Schedule 10A to the Agreement Act contains the Second Protocol to the Netherlands Agreement (the Second Protocol). The Netherlands Agreement and the Protocols operate to avoid the double taxation of income received by Australian and Netherlands residents.

Article 11(1) of the Netherlands Agreement provides that interest income arising in the Netherlands, to which a resident of Australia is beneficially entitled, may be taxed in Australia.

Article 11(2) of the Netherlands Agreement provides that the interest income may be taxed in the Netherlands, but the rate of tax charged shall not exceed 10% of the gross amount of the interest income.

Article 23(1) of the Netherlands Agreement provides that, subject to the provisions of the law of Australia, a credit for any tax paid in the Netherlands will be allowed against Australian tax payable on income from Netherlands sources.

As the taxpayer is a resident of Australia, the interest income received by the taxpayer from the Netherlands forms part of their assessable income under subsection 6-5(2) of the ITAA 1997. As the Netherlands tax has been paid in relation to the interest income, a foreign tax credit will be allowed subject to the Australian foreign tax credit rules.

Note. With effect from 1 July 2008 the foreign tax credit system is replaced by the foreign income tax offset system. The position stated in relation to foreign tax credits will apply to income years up to the year ending 30 June 2008. For subsequent income years the position stated will apply to foreign income tax offsets.

Date of decision: 27 February 2006

Year of income: Year ended 30 June 2002 onwards

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

International Tax Agreements Act 1953

   section 4
   Schedule 10
   Schedule 10A
   Schedule 10, Article 11
   Schedule 10, Article 11(1)
   Schedule 10, Article 11(2)
   Schedule 10, Article 23(1)

Keywords
Double tax agreements
Foreign income
Foreign tax credits
Interest income
International law
Netherlands
Treaties

Siebel/TDMS Reference Number: 4956509

Business Line: Public Groups and International

Date of publication: 17 March 2006

ISSN: 1445-2782

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