Assessability of rental income received by a dual resident of Australia and the UK

Is the rental income received from Australia by a dual resident assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The rental income received from Australia by a dual resident is assessable under subsection 6-5(2) of the ITAA 1997.

The taxpayer is a resident of the UK under the tie breaker tests in Article 4(3) of Schedule 1 to the International Tax Agreements Act 1953 (Agreements Act).

The taxpayer is also a resident of Australia for income tax purposes.

The taxpayer receives rental income from a property located in Australia.

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

Rental income received by the taxpayer is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining liability to Australian tax on Australian sourced income, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the Agreements Act.

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one.

Schedule 1 to the Agreements Act contains the Convention and Notes between Australia and the UK (the 2003 UK Convention). The 2003 UK Convention operates to avoid the double taxation of income received by Australian and UK residents.

Article 6(1) of the 2003 UK Convention provides that income derived by a resident of the UK from real property may be taxed in Australia in which the real property is situated.

Paragraph 66 of Taxation Ruling TR 98/17 states that the terms of the relevant double tax agreement should be referred to when determining the tax liability of the individual taxpayer where the tie-breaker tests in an agreement provide that a dual resident be treated solely as a resident of a treaty country for the purposes of the double tax agreement. However, the taxpayer's Australian resident status is not lost for the general operation of the domestic law and the taxpayer continues to be eligible, for example, for the tax-free threshold.

The rental income derived by the taxpayer may be taxed in Australia as the property is located in Australia under article 6(1) of the 2003 UK Convention.

As the taxpayer is a resident of Australia, the rental income received from Australia will be assessable income under subsection 6-5(2) of the ITAA 1997.