ATO ID 2003/1096: Assessability of interest income received by resident taxpayer from Ireland
Date of decision: 18 November 2003
Year of income: Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006 Year ended 30 June 2007
Business line: Public Groups and International

Issue
Is interest income received from the Republic of Ireland (Ireland) by a resident taxpayer assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. Interest income received from Ireland by a resident taxpayer is assessable under subsection 6-5(2) of the ITAA 1997.

Facts
The taxpayer is a citizen of Ireland. The taxpayer is a resident of Australia for tax purposes and for the purposes of the double tax agreement between Australia and Ireland contained in Schedule 20 to the International Tax Agreements Act 1953 (the Agreements Act). The taxpayer receives interest income from Irish sources. Irish tax is withheld from the taxpayer's interest income.

Reasons for decision
Summary: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, 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 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 20 to the Agreements Act contains the double tax agreement between Australia and Ireland (the Irish Agreement). The Irish Agreement operates to avoid the double taxation of income received by Australian and Irish residents. Article 12(1) of the Irish Agreement provides that interest income arising in Ireland, to which a resident of Australia is beneficially entitled, may be taxed in Australia. Article 12(2) provides that the interest income may be taxed in Ireland, but the rate of tax charged shall not exceed 10% of the gross amount from interest income. Article 25(1) of the Irish Agreement provides that, subject to the provisions of the law of Australia, a credit for any tax paid in Ireland will be allowed against Australian tax payable on income from Irish sources. As the taxpayer is a resident of Australia, the Irish interest income received by the taxpayer forms part of their assessable income under subsection 6-5(2) of the ITAA 1997. As Irish tax has been paid in relation to the interest income a foreign tax credit will be allowed.

Legislative references: Income Tax Assessment Act 1997 subsection 6-5(2)
Subject references: Double tax agreements Interest income Foreign income Foreign tax credits International law Republic of Ireland Treaties