ATO Interpretative Decision
ATO ID 2004/799
Income Tax
Assessability of distributions received by an Australian resident from a United Kingdom unit trustFOI status: may be released
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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Are distributions received by an Australian resident taxpayer from a United Kingdom (UK) unit trust, assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The distributions received by an Australian resident taxpayer from a UK unit trust are assessable income under subsection 6-5(2) of the ITAA 1997.
Facts
The taxpayer is a resident of Australia for income tax purposes.
The taxpayer holds an interest in a UK unit trust.
The taxpayer elected to have distributions issued by the trust automatically reinvested back into the trust.
The value of the taxpayer's interest in the unit trust is less than $50,000.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 provides that an Australian resident taxpayer's income includes ordinary income derived during the income year from all sources, whether in or out of Australia.
A distribution from a unit trust is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
Subsection 6-5(4) of the ITAA 1997 provides that a taxpayer derives an amount of ordinary income when the amount is received, or when it is dealt with in any way on the taxpayer's behalf or as the taxpayer directs.
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 Agreements Act 1953 (Agreements Act).
Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and ITAA 1997 so that those Acts are read as one.
Schedule 1 to the Agreements Act contains the double tax convention between Australia and the UK of Great Britain and Northern Ireland (the UK Convention). Schedule 1A to the Agreements Act contains the UK Protocol. The UK Convention and the UK Protocol operate to avoid the double taxation of income received by Australian and UK residents.
Article 20 of the UK Convention deals with the taxation of income not addressed by the other Articles of the Convention. Article 20 of the UK Convention gives Australia a taxing right on the distribution from a unit trust which is derived from a UK source.
Therefore, the distributions received by the taxpayer from the unit trust are assessable income in Australia under subsection 6-5(2) of the ITAA 1997.
Date of decision: 23 September 2004Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(2)
subsection 6-5(4)
section 4
Schedule 1
Schedule 1, Article 20
Schedule 1A Related ATO Interpretative Decisions
ATO ID 2003/917
ATO ID 2001/647
Keywords
Dividend reinvestment
Double tax agreements
Foreign tax credits
Unit trust distributions
United Kingdom
ISSN: 1445-2782