Assessability of interest from UK treasury bonds

Is interest received by an Australian resident taxpayer from United Kingdom (UK) treasury bonds the taxpayer inherited, assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The interest received by the Australian resident taxpayer from UK treasury bonds the taxpayer inherited is assessable income under subsection 6-5(2) of the ITAA 1997.

The taxpayer, an Australian resident, inherited UK Treasury Bonds under the terms of a will.

The bonds generate interest income paid twice a year in Sterling.

Withholding tax is not deducted when the interest is paid to the taxpayer.

Subsection 6-5(2) of the ITAA 1997 provides that an Australian resident taxpayer's assessable income includes the ordinary income derived from all sources whether in or out of Australia, during the income year.

Interest is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

The taxpayer is a resident of Australia, receiving income from the UK, a country with whom Australia has entered a double taxation agreement. Therefore, the double taxation agreement between Australia and the UK (the UK Agreement) and the protocol to that agreement which are contained in Schedules 1 and 1A to the International Tax Agreements Act 1953 (the Agreements Act) must be considered in determining whether the interest paid to the taxpayer is taxable in Australia.

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

Article 9 of the UK Agreement deals with interest. However, that Article has no effect on the assessability or otherwise of the interest income from the UK treasury bonds received by the Australian resident taxpayer.

Accordingly, the interest received by the taxpayer from the UK treasury bonds is assessable under subsection 6-5(2) of the ITAA 1997.