Edited version of your written advice

Authorisation Number: 1051471898799

Date of advice: 14 February 2019

Ruling

Subject: Foreign dividend income

Question 1

Is the foreign dividend income you received assessable in Australia?

Answer

Yes

Question 2

Does the double tax agreement between Australia and the foreign country operate to exempt the foreign dividend income?

Answer

No

Question 3

Can a foreign income tax offset be claimed in respect of the foreign dividend income?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

You are a tax resident of Australia.

You are a shareholder in a number of companies resident in a foreign country.

The companies do not carry on business in Australia.

You do not carry out any services for the companies in Australia or the foreign country.

You received dividends from the after tax profits of the companies.

Dividends paid by domestic companies in the foreign country are subject to tax on distribution which is paid by the company paying the dividend.

Dividends received from domestic companies are not taxable in the hands of shareholders in the foreign country

You did not personally pay any foreign income tax on the dividends nor was any withholding tax deducted from the dividends paid to you.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 44(1)

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Subsection 6-10(4)

Income Tax Assessment Act 1997 Section 10-5

Income Tax Assessment Act 1997 Section 770-10

Income Tax Assessment Act 1997 Section 770-15

Income Tax Assessment Act 1997 Section 770-130

International Tax Agreements Act 1953

Reasons for decision

Foreign dividend income

Section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The assessable income of an Australian resident taxpayer includes statutory income from all sources, whether in or out of Australia (subsection 6-10(4) of the ITAA 1997).

Section 10-5 of the ITAA 1997 lists provisions about assessable income. Included in this list is subsection 44(1) of the Income Tax Assessment Act 1936 (ITAA 1936) which deals with dividends.

Subsection 44(1) of the ITAA 1936 provides that the assessable income of an Australian resident taxpayer, who is a shareholder of a company (whether the company is a resident or non-resident), includes dividends paid to the taxpayer by the company out of profits derived by it from any source.

Therefore, the foreign dividends you received are included in your assessable income under Australian income tax law.

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 Tax Agreements Act 1953.

Double tax agreements operate to avoid double taxation by allocating taxing rights and the claiming of tax credits between the countries party to a particular agreement.

A provision of the double tax agreement between Australia and the foreign country states that dividends paid by a company which is a resident of the foreign country, being dividends to which a resident of Australia is beneficially entitled, may be taxed in Australia.

Therefore, the double tax agreement does not prevent Australia from taxing the dividends and they are included in your assessable income under subsection 6-10(4) of the ITAA 1997.

Foreign income tax offset

Section 770-10 of the ITAA 1997 provides that a taxpayer is entitled to claim a foreign income tax offset for foreign income tax paid in respect of an amount that is included in the taxpayer’s assessable income.

Section 770-15 of the ITAA 1997 specifies that foreign income tax means tax that is imposed under a law other than an Australian law and is:

● tax on income

● tax on profits or gains, whether of an income or capital nature, or

● any other tax that is subject to an agreement covered by the International Tax Agreements Act 1953.

The taxpayer must have paid the foreign income tax before an offset is available and they are deemed to have paid the tax if it was withheld from the income at its source (section 770-130 of the ITAA 1997).

A provision of the double tax agreement between Australia and the foreign country confirms that Australia will allow a tax credit against Australian tax for any foreign country tax paid by an Australian resident.

In your case, the foreign companies paid you dividends from their after tax profits after first paying a distribution tax on the amount distributed. You were not personally liable for any foreign tax such as income tax or withholding tax on the dividends.

Therefore, there is no amount of foreign tax that you can claim as an offset.