Assessability of Papua New Guinea bank interest derived by a resident

Is bank interest derived by the taxpayer in Papua New Guinea (PNG) assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. Bank interest derived by the taxpayer in PNG is assessable income under section 6-5 of the ITAA 1997. The taxpayer is entitled to a foreign tax credit in Australia for PNG income tax levied on that interest income.

The taxpayer is an Australian resident for taxation purposes in accordance with Australian law and for the purposes of the Double Taxation Agreement between Australia and PNG. The taxpayer derived interest from a bank in PNG.

Paragraph 11(1) of schedule 29 of the International Tax Agreements Act 1953 (Agreements Act) provides that the interest income derived in PNG by the taxpayer may be taxed in PNG.

However, in accordance with paragraph 11(2) of schedule 29 of the Agreements Act, the tax imposed by PNG shall not exceed 10 percent of the gross amount of the interest derived by the taxpayer.

As the taxpayer is an Australian resident for taxation purposes, the taxpayer will be assessed in Australia on interest derived from PNG.

Under paragraph 23(1), where PNG income tax has been levied on the interest derived by the taxpayer in PNG, a credit will be allowable in Australia against tax payable on that interest. Note: With effect from 1 July 2008 the foreign tax credit system is replaced by the foreign income tax offset system. This ATO ID is still current.