ATO ID 2004/350: Assessability of interest income sourced in Sweden received by an Australian resident individual
Date of decision: 7 April 2004
Year of income: Year ended 30 June 2001
Business line: Public Groups and International

Issue
Is the Swedish sourced interest income received by an Australian resident individual assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. The Swedish sourced interest income received by an Australian resident individual is assessable under subsection 6-5(2) of the ITAA 1997.

Facts
The taxpayer is a resident of Australia for tax purposes. The taxpayer received interest income from sources in Sweden. The taxpayer paid foreign tax in excess of 10% of the gross interest received.

Reasons for decision
Summary: 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. Interest income is ordinary income for the purposes of subsection 6-5(2) 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). 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 17 to the Agreements Act contains the double tax agreement between Australia and Sweden (the Swedish Agreement). The Swedish Agreement operates to avoid the double taxation of income received by Australian and Swedish residents. Article 11(1) of the Swedish Agreement provides that interest arising in Sweden, being interest to which a resident of Australia is beneficially entitled, may be taxed in Australia. Article 11(2) of the Swedish Agreement provides that the interest may also be taxed in Sweden but the rate of tax is limited to 10 per cent of the gross amount. Article 24(1) of the Swedish Agreement provides that a credit against Australian tax for Swedish tax paid shall be allowed (in accordance with the law of Australia) where tax has been paid under Swedish law and in accordance with the Swedish Agreement. Where the assessable income of a resident contains foreign sourced income and foreign tax has been paid on that income, a foreign tax credit will be allowed. As the taxpayer is a resident of Australia, the interest income forms part of their assessable income under subsection 6-5(2) of the ITAA 1997. As Swedish tax has been paid in relation to this interest, a foreign tax credit will be allowed.

Legislative references: Income Tax Assessment Act 1997 subsection 6-5(2)
Subject references: Double tax agreements Foreign tax credits Foreign income Interest income Sweden