Assessability of dividend received from Sweden by an Australian resident individual

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

Yes. Dividends sourced in Sweden received by a 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 Swedish 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 in 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 of foreign sourced income received by a resident 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 ITAA 1997 so that those Acts are read as one.

Schedule 17 to the Agreements Act contains the tax treaty between Australia and Sweden (Swedish Agreement). The Swedish Agreement operates to avoid double taxation of income received by Australian and Swedish residents.

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

Article 10(2) of the Swedish Agreement provides that such dividends may be taxed in Sweden, and according to the law of Sweden, but the tax shall not exceed 15 per cent of the gross amount of the dividends.

Article 24(1) of the Swedish Agreement provides that a credit against Australian tax for tax paid in Sweden shall be allowed (in accordance with the law of Australia) where Swedish tax has been paid in accordance with the Swedish Agreement. However, in the case of a dividend, no credit is allowable for tax paid in respect of the profits out of which the dividend is paid.

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 Swedish tax is paid in relation to this dividend income, a foreign tax credit will be allowed.