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Are French sourced dividends received by an Australian resident individual assessable under subsection 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The French sourced dividends received by an Australian resident individual are assessable under subsection 6-10(4) of the ITAA 1997. However, if the Australian resident has paid French income tax not exceeding 15% of the gross amount of the dividend income, they are entitled to claim a foreign income tax offset.

The taxpayer is an individual and a resident of Australia for taxation purposes.

The taxpayer receives dividends from French sources, which are treated as dividends for French tax law purposes.

The taxpayer does not carry on business through a permanent establishment in France.

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 provisions about 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 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. Section 44 of the ITAA 1936 goes on to state that the section does not apply to any part of the dividend if another provision (which expressly deals with dividends, such as sections 23AJ, 23AI, 23AK and 128D of the ITAA 1936) includes that part in, or excludes it from, the taxpayer's assessable income. However, in this case, there is no other provision which affects this dividend.

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 ITAA 1936 and the ITAA 1997 so that those Acts are read as one.

Schedule 11 to the Agreements Act contains the tax treaty between Australia and France (the 2006 French Convention) which came into force on 1 June 2009 and, by virtue of Article 30(1)(a)(ii), applies to dividends derived after 1 July 2010. The 2006 French Convention operates to prevent fiscal evasion and avoid double taxation of income received by Australian and French residents.

Article 10(1) of the 2006 French Convention provides that dividends paid by a company that is a resident of France, being dividends beneficially owned by a resident of Australia, may be taxed in Australia.

However, Article 10(2)(c) of the 2006 French Convention allows France to also tax such dividends, at a rate not exceeding 15%, where the beneficial owner of the dividends is an individual.

Hence, although the 2006 French Convention limits the rate of tax France can impose, it allows for this dividend income to be taxed by both countries. As the Convention does not prevent Australia taxing the dividend income received by the Australian resident individual, the dividend income is assessable in Australia under subsection 6-10(4) of the ITAA 1997. Note: as the country of residence of the taxpayer, Australia is obliged to provide relief from any double taxation of the dividends in accordance with Article 23(1) of the 2006 French Convention. Where France exercises its right under Article 10(2)(c) of the 2006 French Convention to tax the dividends, the taxpayer will be entitled to a foreign income tax offset under Division 770 of the ITAA 1997.