Income Tax Assessment Act 1936

In this section, a reference to a person to whom this section applies is a reference to the Commonwealth, a State, an authority of the Commonwealth or of a State or a person who is, or persons at least 1 of whom is, a resident.

References in this section to amounts paid to a person may include amounts from an AMIT that, under section 12A‑205 in Schedule 1 to the Taxation Administration Act 1953, are treated as payments to the person (from the trustee of the AMIT or a custodian).

Subject to subsections (3), (3A), (3D) and (3E), this section applies to income that:

is derived, on or after 1 January 1968, by a non‑resident; and

consists of a dividend paid by a company that is a resident.

An amount declared to be conduit foreign income is an amount to which this section does not apply: see sections 802‑15 and 802‑17 of the Income Tax Assessment Act 1997.

Subject to subsection (3), this section also applies to income that:

is derived, on or after 1 January 1968, by a non‑resident; and

consists of interest that:

is paid to the non‑resident by a person to whom this section applies and is not an outgoing wholly incurred by that person in carrying on business in a country outside Australia at or through a permanent establishment of that person in that country; or

is paid to the non‑resident by a person who, or by persons each of whom, is not a resident and is, or is in part, an outgoing incurred by that person or those persons in carrying on business in Australia at or through a permanent establishment of that person or those persons in Australia.

An amount of interest paid to a person by a temporary resident is an amount to which this section does not apply: see section 768‑980 of the Income Tax Assessment Act 1997.

Subject to subsection (3), where income:

is, or has, after 2 July 1973, been, derived, or derived in part, by a person to whom this section applies in carrying on business in a country outside Australia at or through a permanent establishment of the person in that country; and

consists of interest that:

is or has been paid to the person by another person to whom this section applies and is not an outgoing wholly incurred by that other person in carrying on business in a country outside Australia at or through a permanent establishment of that other person in that country; or

is or has been paid to the first‑mentioned person by a person who is, or by persons each of whom is, not a resident and is, or is in part, an outgoing incurred by that last‑mentioned person or those last‑mentioned persons in carrying on business in Australia at or through a permanent establishment of that last‑mentioned person or those last‑mentioned persons in Australia;

An amount of interest paid to a person by a temporary resident is an amount to which this section does not apply: see section 768‑980 of the Income Tax Assessment Act 1997.

Subject to subsection (3), this section also applies to income that:

is derived by a non‑resident:

during the 1993‑94 year of income of the non‑resident; or

during a later year of income of the non‑resident; and

consists of a royalty that:

is paid to the non‑resident by a person to whom this section applies and is not an outgoing wholly incurred by that person in carrying on business in a foreign country at or through a permanent establishment of that person in that country; or

is paid to the non‑resident by a person who, or by persons each of whom, is not a resident and is, or is in part, an outgoing incurred by that person or those persons in carrying on business in Australia at or through a permanent establishment of that person or those persons in Australia.

Subject to subsection (3), where income:

is derived, or derived in part, by a person (the recipient) to whom this section applies in carrying on business in a country outside Australia at or through a permanent establishment of the person in that country; and

consists of a royalty that:

is paid to the recipient by another person (the payer) to whom this section applies and is not an outgoing wholly incurred by the payer in carrying on business in a country outside Australia at or through a permanent establishment of the payer in that country; or

is paid to the recipient by one or more persons (the non‑resident payers), each of whom is not a resident, and is, or is in part, an outgoing incurred by the non‑resident payers in carrying on business in Australia at or through a permanent establishment of the non‑resident payers in Australia;

Subsections (2B) and (2C) do not apply to income to the extent to which it is a return on an equity interest in a company.

This section does not apply to:

income that consists of a non‑share dividend that is unfrankable under section 215‑10 of the Income Tax Assessment Act 1997; or

income derived by a non‑resident that is:

exempt from income tax because of section 50‑5 (other than because of item 1.6 in the table in that section) or 50‑10, item 6.1 or 6.2 of the table in section 50‑30, section 50‑40 or item 9.1, 9.2, 9.3, 9.4, 9.5, 9.10 or 9.11 of the table in section 50‑45 of the Income Tax Assessment Act 1997; and

exempt from income tax in the country in which the non‑resident resides; or

income derived by a non‑resident that is an overseas charitable institution (within the meaning of section 121C) where the income is exempt under subsection 121ELA(1); or

income derived by a non‑resident that is exempt from income tax because of item 9.8, 9.9, 9.12 or 9.13 of the table in section 50‑45 of the Income Tax Assessment Act 1997; or

income that is exempt from income tax because of section 124ZM (which exempts dividends paid by PDFs); or

income in respect of which a trustee is liable to be assessed under section 99 or section 99A; or

income that is derived by a trustee, being a trustee in relation to a trust created by a person who, at the time the income is derived, is a resident and in respect of which the Commissioner is empowered, under section 102, to assess the trustee to pay income tax; or

income that consists of:

the franked part of a dividend; or

in relation to a dividend that is paid by a former exempting entity (within the meaning of the Income Tax Assessment Act 1997) on a share acquired under an employee share scheme (within the meaning of that Act)—the part of the dividend that is franked with an exempting credit; or

in relation to a dividend that is paid by a former exempting entity (within the meaning of the Income Tax Assessment Act 1997) to an eligible continuing substantial member (within the meaning of that Act)—the part of the dividend that is franked with an exempting credit;

income that consists of a dividend derived from assets included in the insurance funds of a life assurance company that carries on business in Australia at or through a permanent establishment of the life assurance company in Australia; or

income that consists of interest derived on a nostro account by a non‑resident that is a foreign bank; or

income that consists of:

interest derived by a non‑resident in carrying on business in Australia at or through a permanent establishment of the non‑resident in Australia (except interest derived by a limited partner in a VCLP, ESVCLP or AFOF as such a partner);

interest to which section 128F, 128FA or 128GB applies; or

income in respect of which a taxpayer is liable to be assessed under Division 9C; or

income that:

is derived by a non‑resident that is a superannuation fund for foreign residents; and

consists of interest, or consists of dividends or non‑share dividends paid by a company that is a resident; and

is exempt from income tax in the country in which the non‑resident resides; or

See subsection (3CA) for extra requirements relating to this paragraph.

income that is not included in assessable income because of subsection 271‑105(1); or

income derived by a trustee that, because of paragraph 102UK(2)(b) or 102UM(2)(b), is not included in the assessable income of a trustee beneficiary of the trust estate; or

income that consists of a royalty that is paid to the non‑resident by a person (the lessee) as consideration for the lease, by the lessee from the non‑resident, of a vessel if:

the lessee is an Australian resident company; and

the vessel is not an excluded vessel (within the meaning of the Shipping Reform (Tax Incentives) Act 2012); and

under the lease, the lessee has whole possession and control of the vessel (including the right to appoint the master and crew of the ship); and

during the period of the lease, the vessel is used, or is available for use, as mentioned in paragraph 8(1)(c) of the Shipping Reform (Tax Incentives) Act 2012; or

income that is non‑assessable non‑exempt income because of Division 880 of the Income Tax Assessment Act 1997 or Division 880 of the Income Tax (Transitional Provisions) Act 1997.

Paragraph (3)(ga) does not apply to income consisting of a dividend, or a part of a dividend, that is derived by the trustee of a trust, or a partnership, to the extent (if any) to which any amount paid to, or applied for the benefit of, a taxpayer (being a beneficiary in the trust or a partner in the partnership) that:

was attributable to the dividend; and

was paid or applied:

in respect of an interest in the trust or partnership that was acquired, or was acquired for a period that was extended, at or after the commencing time; or

under a financing arrangement (including an arrangement extending an earlier arrangement) entered into at or after the commencing time;

In subsection (3A):

In determining for the purposes of subsection (3A) the extent (if any) to which an amount may reasonably be regarded as equivalent to the payment of interest on a loan, regard is to be had to:

the way in which the amount was calculated; and

the conditions applying to the payment or application of the amount; and

any other relevant matters.

Paragraph (3)(jb) applies to income derived by the superannuation fund mentioned in subparagraph (3)(jb)(i) only if:

the superannuation fund satisfies the portfolio interest test in subsection (3CC) in relation to the entity mentioned in subsection (3CB) (the test entity):

at the time the income was derived; and

throughout any 12 month period that began no earlier than 24 months before that time and ended no later than that time; and

the superannuation fund does not, at the time the income was derived, have influence of a kind described in subsection (3CD) in relation to the test entity; and

the income is not non‑assessable non‑exempt income of the superannuation fund because of:

Subdivision 880‑C of the Income Tax Assessment Act 1997; or

Division 880 of the Income Tax (Transitional Provisions) Act 1997.

For the purposes of subsection (3CA), the test entity is:

unless paragraph (b) applies—the entity that paid the interest, dividends or non‑share dividends as mentioned in subparagraph (3)(jb)(ii); or

if subsection 128A(3) applies in relation to a resident trust estate (within the meaning of Division 6)—the trust estate.

A superannuation fund satisfies the portfolio interest test in this subsection in relation to the test entity at a time if, at that time, the total participation interest (within the meaning of the Income Tax Assessment Act 1997) the superannuation fund holds in the test entity:

is less than 10%; and

would be less than 10% if, in working out the direct participation interest (within the meaning of that Act) that any entity holds in a company:

an equity holder were treated as a shareholder; and

the total amount contributed to the company in respect of non‑share equity interests were included in the total paid‑up share capital of the company.

A superannuation fund has influence of a kind described in this subsection in relation to the test entity at a time if any of the following requirements are satisfied at that time:

the superannuation fund:

is directly or indirectly able to determine; or

in acting in concert with others, is directly or indirectly able to determine;

at least one of those persons is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of the superannuation fund (whether those directions, instructions or wishes are expressed directly or indirectly, or through the superannuation fund acting in concert with others).

However, a superannuation fund does not have influence of a kind described in subsection (3CD) if, disregarding any breach of terms of a debt interest by any entity, the superannuation fund would not have influence of that kind.

This section does not apply to a demerger dividend to which section 45B does not apply.

This section does not apply to income that consists of a dividend that:

is paid to a person who is a non‑resident carrying on business in Australia at or through a permanent establishment of the person in Australia; and

is attributable to the permanent establishment; and

is not paid to the person in the person’s capacity as trustee.

This subsection not only ensures that this section does not apply to that income to make withholding tax payable on it, but also (as a result) ensures that none of that income is non‑assessable non‑exempt income under section 128D. Subsection 44(1) makes that income assessable income.

In subsection (3E):

has the same meaning as in a double tax agreement (as defined in Part X) that relates to a foreign country and affects the person; or

has the meaning given by subsection 6(1), if there is no such agreement.

A person who derives income to which this section applies that consists of a dividend is liable to pay income tax upon that income at the rate declared by the Parliament in respect of income to which this subsection applies.

A person who derives income to which this section applies that consists of interest is, subject to subsections (6) and (7), liable to pay income tax upon that income at the rate declared by the Parliament in respect of income to which this subsection applies.

A person who derives income to which this section applies that consists of a royalty is liable to pay income tax upon that income at the rate declared by the Parliament in respect of income to which this subsection applies.

Where:

income to which this section applies consists of interest and is paid to the person by whom it is derived by a person to whom this section applies; and

the interest is, in part only, an outgoing incurred by that person to whom this section applies in carrying on business in a country outside Australia at or through a permanent establishment of that person to whom this section applies in that country;

Where:

income to which this section applies consists of interest and is paid to the person by whom it is derived by a person who, or by persons each of whom, is not a resident; and

the interest is, in part only, an outgoing incurred by the person or persons by whom it is paid in carrying on business in Australia at or through a permanent establishment of that person or those persons in Australia;

For the purposes of subparagraphs (2)(b)(i) and (2A)(b)(i) and paragraph (6)(b), where:

interest is paid, or has, after 2 July 1973, been paid, to a person by another person, being a person to whom this section applies, carrying on business in a country outside Australia; and

the interest or a part of the interest:

is interest incurred by the other person in gaining or producing income that is derived by the other person otherwise than in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country or is interest incurred by the other person for the purpose of gaining or producing income to be so derived; or

is interest incurred by the other person in carrying on business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the other person otherwise than in so carrying on business at or through a permanent establishment of the other person in a country outside Australia;

For the purposes of subparagraphs (2)(b)(ii) and (2A)(b)(ii) and paragraph (7)(b), where:

interest is paid, or has, after 2 July 1973, been paid, to a person by another person or other persons (in this subsection referred to as the borrower), being:

another person who is or was carrying on business in Australia and is not or was not a resident; or

other persons who are or were carrying on business in Australia and each of whom is not or was not a resident; and

the interest or a part of the interest:

is interest incurred by the borrower in gaining or producing income that is derived by the borrower in carrying on business in Australia at or through a permanent establishment of the borrower in Australia or is interest incurred by the borrower for the purpose of gaining or producing income to be so derived; or

is interest incurred by the borrower in carrying on a business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the borrower in so carrying on business at or through a permanent establishment of the borrower in Australia;

For the purposes of subparagraphs (2B)(b)(i) and (2C)(b)(i), where:

a royalty is paid, to a person by another person, being a person to whom this section applies, carrying on business in a country outside Australia; and

the royalty, or a part of the royalty:

is a royalty incurred by the other person in gaining or producing income that is derived by the other person otherwise than in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country or is a royalty incurred by the other person for the purpose of gaining or producing income to be so derived; or

is a royalty incurred by the other person in carrying on business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the other person otherwise than in so carrying on business at or through a permanent establishment of the other person in a country outside Australia;

For the purposes of subparagraphs (2B)(b)(ii) and (2C)(b)(ii), where:

a royalty is paid to a person by another person or other persons (the licensee), being:

another person who is or was carrying on business in Australia and is not or was not a resident; or

other persons who are or were carrying on business in Australia and each of whom is not or was not a resident; and

the royalty or a part of the royalty:

is a royalty incurred by the licensee in gaining or producing income that is derived by the licensee in carrying on business in Australia at or through a permanent establishment of the licensee in Australia or is a royalty incurred by the licensee for the purpose of gaining or producing income to be so derived; or

is a royalty incurred by the licensee in carrying on a business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the licensee in so carrying on business at or through a permanent establishment of the licensee in Australia;

If:

apart from this subsection, tax would be payable under subsection 126(1) on an amount of interest paid to a person; and

section 128F would apply to the interest, assuming that paragraph (1)(e) of that section had not been enacted;

despite anything else in this section, the interest is taken, for the purposes of this Division, to be income derived by the person and to be income to which this section applies; and

As a result of this paragraph, the interest will not be subject to tax under subsection 126(1): see paragraph 126(1)(b).

in addition to the effect of any credit arising under section 18‑30 in Schedule 1 to the Taxation Administration Act 1953 in respect of the interest, the total tax payable by the person, other than under this section, is reduced by the amount of any tax payable under this section on the interest; and

tax paid under this section on the interest is not an allowable deduction.

Income tax payable by a person in accordance with this section is in addition to any other income tax payable by him or her upon income to which this section does not apply.

Income tax payable by a person in accordance with this section upon income to which this section applies by virtue of subsection (2A) or (2C) is in addition to, and shall not be taken into account in arriving at the amount of, any other income tax payable by him or her in respect of that income.