Issue
Is an Australian resident taxpayer entitled to a foreign income tax offset under subsection 770-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) for New Caledonian tax paid in relation to pension and rental income received from New Caledonia?
Decision
Yes. An Australian resident taxpayer is entitled to a foreign income tax offset under subsection 770-10(1) of the ITAA 1997 for New Caledonian tax paid in relation to pension and rental income received from New Caledonia.
Facts
The taxpayer is a resident of Australia for income tax purposes.
The taxpayer received pension income from New Caledonia.
The taxpayer received rental income from a property in New Caledonia.
The law of New Caledonia provides for the imposition of income tax on pension and rental income derived in New Caledonia.
The taxpayer has paid income tax in New Caledonia in relation to that income.
Reasons for Decision
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 during the income year.
Pension income and rental income is ordinary income for the purposes of section 6-5 of the ITAA 1997.
In determining liability to Australian tax on foreign sourced income, it is necessary to consider not only the income tax laws but also any double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act). Section 4 of the Agreements Act incorporates that Act with the Income Taxation Assessment Act 1936 and the ITAA 1997 so that those Acts are read as one.
Australia does not have a tax treaty with New Caledonia. However, as New Caledonia is an overseas territory of France, the French Agreement may apply.
Schedule 11 to the Agreements Act contains the tax treaty between Australia and France (the 2006 French Convention) which came into force on 1 June 2009. The 2006 French Convention operates to avoid double taxation of income received by Australian and French residents.
Taxation Determination TD 93/220 addresses whether the definition of 'France' in Article 2(1)(b) of the former 1976 French Agreement and French Protocol includes the overseas French Territories. TD 93/220 determines that these territories are not part of France for the purposes of the French Agreement. Therefore the former 1976 French Agreement does not apply. The definition of 'France' in Article 3(1)(b) of the new 2006 French Convention is substantially the same as in the former French Agreement, and thus it also does not apply.
Subsection 770-10(1) of the ITAA 1997 provides that where the assessable income of a resident contains foreign income and foreign income tax has been paid on that income, a tax offset will be allowed. The tax offset has the effect of reducing the Australian tax that would otherwise be payable on the double-taxed amount. The amount of the foreign income tax offset is subject to the foreign income tax offset limit calculated in accordance with section 770-75.
As the taxpayer is a resident of Australia, the New Caledonia pension and rental income forms part of their assessable income under subsection 6-5(2) of the ITAA 1997. The law of New Caledonia provides for the imposition of income tax on pension and rental income derived from New Caledonia. The taxpayer has paid income tax in New Caledonia in relation to that income.
Therefore a foreign income tax offset will be allowed under subsection 770-10(1) of the ITAA 1997.