Edited version of private advice

Authorisation Number: 1052402749253

Date of advice: 06 June 2025

Ruling

Subject: Double tax agreement

Question

From XX XXXX 20XX to 30 June 20XX, under the Double Tax Agreement between Australia and Country A, are you required to pay tax on your Country A company dividends in Australia?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

You were born in the Country B.

You are married and hold Country C citizenship.

Until 20XX, when you resided in Country A, you were CEO of the Company A.

You no longer make any managerial decisions for Company A and this roll is instead fulfilled by a different CEO.

You remain a XX% shareholder in Company A. You also hold an additional XX% in trust for a third party. Bringing your ownership to XX%.

Company A is a tax resident of Country A.

Company A has a permanent establishment in Country A.

On XX XXXX 20XX, you travelled to Australia on a subclass 189 visa (skilled independent) and became an Australian tax resident.

You are currently employed as a physiotherapist in Australia.

In the 20XX tax year, you received no dividend income from Company A.

You will retain your current shareholdings and intend to receive dividends from Company A for the ruling period.

You are not tax resident of Country A.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

International Tax Agreements Act 1953

Reasons for decision

Summary

Paragraphs 1 and 2 of Article 10 of the DTA provide that dividends paid by a company which is a resident of Country A to a resident of Australia, may be taxed in Australia. Therefore, dividend income you derive from your Country A shareholdings is subject to tax in Australia.

Detailed reasoning

Double Taxation Agreement (DTA)

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) states that the assessable income of an Australian resident includes income derived directly or indirectly from all sources, whether in or out of Australia, during the income year, unless that income is exempt income or otherwise not assessable income.

In determining a taxpayer's liability to pay tax in Australia it is also necessary to consider the operation of any applicable tax treaty contained in the International Tax Agreements Act 1953.

Sections 4 and 5 of the International Tax Agreements Act 1953 (Agreements Act) incorporate that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the Income Tax Assessment Act 1997 (ITAA 1997) and provide that the provisions of a double tax agreement have the force of law.

Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 of TR 2001/13 provides that the OECD Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements.

There is a double tax agreement (DTA) between Australia and Country A.

The taxation rights over foreign-sourced dividends between Australia and Country A is enacted through Article 10 of the DTA, updated in accordance with Article 2 of the Second Amending Protocol to the DTA to provide:

1. Dividends paid by a company which is a resident of one of the Contracting States for the purposes of its tax, being dividends to which a resident of the other Contracting State is beneficially entitled, may be taxed in that other State.

2. However, those dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law of that State, but:

(a) in Australia:

(i) no tax shall be charged on dividends to the extent to which those dividends have been "franked" in accordance with Australia's law relating to tax, if the person beneficially entitled to those dividends is a company (other than a partnership) which holds directly at least 10 per cent of the voting power in the company paying the dividends; and

(b) in Country A:

no tax shall be charged on dividends paid by a company which is resident in Country A for the purposes of Country A tax being dividends to which a resident of Australia is beneficially entitled, in addition to the tax chargeable in respect of the income or profits of the company paying the dividends.

3. For the purposes of paragraph 2, if the relevant law in either Contracting State at the date of signature of this Protocol is varied otherwise than in minor respects so as not to affect its general character, the Contracting States shall consult each other with a view to agreeing to any amendment of that paragraph that may be appropriate.

4. The term "dividends" as used in this Article means income from shares, as well as other amounts which are subjected to the same taxation treatment as income from shares by the law of the State of which the company making the distribution is a resident for the purposes of its tax.

5. The provisions of paragraphs 1 and 2 shall not apply if the person beneficially entitled to the dividends, being a resident of one of the Contracting States, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated in that other State, and the holding in respect of which the dividends are paid is effectively connected with that permanent establishment. In that case the provisions of Article 7 shall apply.

Paragraphs 1 and 2 of Article 10 of the DTA apply so that dividends paid by a company which is a tax resident of Country A to resident of Australia, may be taxed in Australia. Under paragraph 2(b) of Article 10, Country A will not tax dividends paid by a Country A company to a resident of Australia beyond the tax which is chargeable on the company's profits or income.

Under paragraph 4 of Article 10 of the DTA, the term dividends include shares.

Paragraph 5 of Article 10 of the DTA provides that paragraphs 1 and 2 will not apply if the person beneficially entitled to the dividends, being a resident of Australia, carries on business in Country A through a permanent establishment from which the dividends are paid. In such circumstances, Article 7 or 14 will apply, as relevant.

Application to your circumstances (both the taxpayers as it is same application)

From XX XXXX 20XX, you are a tax resident of Australia. You are not a tax resident of Country A.

In your circumstances, paragraph 5 will not apply because you are not carrying on a business in Country A through a permanent establishment in Country A connected with the dividends. Company A is carrying on business in Country A but you as the person beneficially entitled to the dividends are not.

Therefore, the dividend income you derive is subject to tax in Australia under Article 10 of the DTA as published in Article 2 of the Second Amending Protocol to the DTA.

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