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ATO Interpretative Decision

ATO ID 2005/71

Income Tax
Assessability of dividends received by Australian resident from the United Kingdom

Attention This ATO ID has been amended to remove references in the Reasons for Decision to repealed legislation dealing with foreign tax credit rules. With effect from 1 July 2008 the foreign tax credit will by replaced by a foreign tax offset.
This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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.
FOI status: may be released
Status of this decision: Decision current for income of any year of income beginning on or after 1 July 2004

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 dividends received by an Australian resident individual from the United Kingdom (UK) assessable under subsection 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. Dividends received by an Australian resident individual from the UK are assessable under subsection 6-10(4) of the ITAA 1997.

Facts

The taxpayer will be a resident of Australia for the 2004-05 income year.

The taxpayer will receive dividends from UK sources.

The dividends will be taxed at the rate of 10% in the UK.

Reasons for Decision

Section 6-10 of the 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 the provisions about what constitutes assessable income. Included in this list is subsection 44(1) of the Income Tax Assessment Act 1936 (ITAA 1936) which deals with dividends.

Paragraph 44(1)(a) of the ITAA 1936 provides that, subject to certain provisions, 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.

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 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that those Acts are read as one.

Schedule 1 to the Agreements Act contains the tax treaty between Australia and the United Kingdom of Great Britain and Northern Ireland and the Notes to the agreement (2003 UK Convention). The 2003 UK Convention operates to avoid double taxation of income received by Australian and UK residents. In the case of Australia, the 2003 UK Convention has effect in relation to income or gains of any year of income beginning on or after 1 July 2004.

Article 10(1) of the 2003 UK Convention provides that dividends paid by a UK company, being dividends beneficially owned by a resident of Australia, may be taxed in Australia.

Article 10(2) of the 2003 UK Convention provides that the dividends may also be taxed in the UK, however the tax charged shall not exceed:

(a)
 5% of the gross amount of the dividends, if the beneficial owner is a company which holds directly at least 10% of the voting power in the company paying the dividends, and
(b)
 15% of the gross amount of the dividends in all other cases.

As the taxpayer is an Australian resident individual in receipt of dividends from a UK company, the dividends may be taxed in Australia and in the UK. However, the tax payable in the UK is limited to a maximum of 15% of the gross amount of the dividends.

Article 22(1)(a) of the 2003 UK Convention provides that a credit against Australian tax payable shall be allowed for UK tax paid (in accordance with the law of Australia) where tax has been paid under UK law and in accordance with the 2003 UK Convention.

As the taxpayer is an Australian resident, the dividend income received from the UK forms part of their assessable income under subsection 6-10(4) of the ITAA 1997.

Where UK tax is paid in relation to the dividend income, a foreign tax credit will be allowed. However, the amount of UK tax that may be considered for a credit under the foreign tax credit provisions is limited to 15% of the gross amount of the dividend.

Date of decision: 28 January 2005

Year of income:Year ended 30 June 2005

Legislative References:
Income Tax Assessment Act 1936
   subsection 44(1)

Income Tax Assessment Act 1997
   section 6-10
   subsection 6-10(4)
   section 10-5

International Tax Agreements Act 1953
   section 4
   Schedule 1
   Schedule 1, Article 10
   Schedule 1, Article 10(1)
   Schedule 1, Article 10(2)
   Schedule 1, Article 22(1)(a)

Keywords
Dividend income
Double tax agreements
Foreign income
International tax
United Kingdom

Date of publication: 11 March 2005

ISSN: 1445-2782

 


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