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Ruling
Subject: Assessability of foreign income
Question and answer
Are the director's fees you receive from an overseas company assessable income in Australia?
Yes.
This ruling applies for the following period:
Year ending 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
You are a resident of Australia for taxation purposes.
You operate a company overseas.
You receive director's fees from this company.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Subsection 6-5(2).
International Tax Agreements Act 1953 Schedule 4 Article 16.
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident for taxation purposes includes all the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.
Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).
Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country Y Agreement is listed in section 5 of the Agreements Act.
The Country Y agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The agreement operates to avoid the double taxation of income received by residents of Australia and Country Y.
Article 16 of the Country Y agreement advises that director's fees are assessable income in Australia for taxpayers who are residents of Australia.
Article 16 states that the director's fees may also be taxable in the overseas country.
Article 16 does not preclude a taxpayer from their taxation liability in Australia.
As a resident of Australia and in accordance with Article 16 of the Double Taxation Agreement you are required to declare the director's fees in your Australian tax return.
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