Private ruling: Assessable income
Date of advice: 11 August 2020
Published: September 2020
Ruling period: Year ended 30 June 2020 | Year ending 30 June 2021 | Year ending 30 June 2022 | Year ending 30 June 2023
Date scheme commenced: 1 July 2019

Ruling: Q1: Is your Australian sourced interest subject to withholding tax? | A1: Yes. | Q2: Is your sales income and interest assessable in Australia? | A2: No.

Relevant facts and circumstances: You are a Country Z and Australian citizen and passport holder. You are a non-resident of Australia for tax purposes. You have been living and working in Country Z for several years. You visit Australia occasionally for a short period. You do not have a home, car or other assets in Australia. You conduct all your work in Country Z. You sell to clients outside of Australia and do not have Australian clients. You do not have employees in Australia. You use an Australia bank account to store your funds.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 128B(2) | Income Tax Assessment Act 1997 section 6-5

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (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. Ordinary income has generally been held to include interest income and the general principle is that interest is derived when it is received or credited. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. The source of a taxpayer's income (derivation) is the place where the services are performed: French v. FC of T (1957) 98 CLR 398. In your case, the income you earn while carrying out your business in Country Z is considered to have a Country Z source as you are physically present in Country Z when you carry out your duties. As the income is derived in Country Z, along with the fact that you are a non-resident of Australia for taxation purposes, the income earned from your business whilst living in Country Z is not assessable under section 6-5 of the ITAA 1997. In regard to interest generated in Australia, the interest derived by a non-resident is subject to withholding tax under subsection 128B(2) in Division 11A of Part III to the Income Tax Assessment Act 1936 (ITAA 1936) where the interest is paid by: (a) a resident, except where the interest is wholly incurred by the resident as an expense of carrying on a business overseas at or through a permanent establishment; or (b) a non-resident and the interest is an expense wholly or partly incurred by the non-resident in carrying on a business in Australia at or through a permanent establishment in Australia. Generally, interest payments made to a non-resident are currently subject to a final withholding tax rate of 10% after which, the interest is not assessable income.