ATO Interpretative Decision

ATO ID 2002/654 (Withdrawn)

Income Tax

• This ATO ID is withdrawn. Guidance on the issue contained in this ATO ID can be found at Investment income (QC 31937).
  This document has changed over time. View its history.

Issue

Does interest received from Germany form part of an Australian resident taxpayer's assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. As the taxpayer is a resident of Australia, they are required to include the interest income in their assessable income under section 6-5 of the ITAA 1997 but a foreign tax credit will be allowed for the foreign tax paid.

Facts

The taxpayer is a resident of Australia for taxation purposes.

The taxpayer has invested funds in Germany and receives interest income.

Tax at the rate of 10% has been deducted from that interest income by the German taxation authorities.

Reasons for Decision

Subsection 6-5 (2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

As the taxpayer is a resident of Australia the interest income forms part of their assessable income under section 6-5 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 double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).

Schedule 9 to the Agreements Act contains the double tax agreement between Australia and Germany (the German Agreement). The German Agreement operates to avoid the double taxation of income received by Australian and German residents.

Article 11 of the German Agreement provides that the German taxation authorities have the right to deduct tax at a rate of 10% of the gross amount from interest income derived from Germany and paid to a resident of Australia.

Paragraph (1) of Article 22 of the German Agreement provides that, subject to the provisions of the law of Australia, a credit for any tax paid in Germany will be allowed against Australian tax payable on income from German sources.

The German interest income received by the taxpayer forms part of their assessable income under section 6-5 of the ITAA 1997. As German tax has been paid in relation to this interest a foreign tax credit will be allowed. As the German tax paid on the interest is less than the Australian tax payable the taxpayer will be entitled to a full credit for the German tax paid.

Year of income:  Year ended 30 June 1998 Year ended 30 June 1999

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

Related ATO Interpretative Decisions
ATO ID 2002/655

Keywords
Foreign tax credits
Double tax agreements
Interest income

Business Line:  Small Business/Individual Taxpayers

Date of publication:  25 June 2002

ISSN: 1445-2782