Assessability of dividend income sourced in the United States (US) received by an Australian resident individual

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

Yes. US sourced dividends received by an Australian resident individual are assessable under subsection 6-10(4) of the ITAA 1997.

The taxpayer is a resident of Australia for taxation purposes.

The taxpayer receives dividends from US sources.

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 the 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, subject to certain provisions, 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.

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 (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 2 to the Agreements Act contains the double tax agreement between Australia and the US (US Convention). The US Convention operates to avoid double taxation of income received by Australian and US residents.

Article 10(1) of the US Convention provides that dividends paid by a US company, being dividends to which a resident of Australia is beneficially entitled, may be taxed in Australia.

Article 10(2) of the US Convention provides that the dividends paid by a US company may also be taxed in the US, according to the law of the US. However, the tax shall not exceed 15 per cent of the gross amount of the dividend.

Article 22(2) of the US Convention provides that a credit against Australian tax for tax paid in the US shall be allowed (in accordance with the law of Australia) where tax has been paid under US law and in accordance with the US Convention.

As the taxpayer is a resident of Australia, the dividend income forms part of their assessable income under subsection 6-10(4) of the ITAA 1997. If US tax is paid in relation to this dividend income, a foreign tax credit will be allowed.