australia new zealand double tax agreement explanatory memorandum

[Article 27, paragraph 1]. 2.32 The same result is obtained even if New Zealand regarded the beneficiaries as taxable on the income rather than the trust or trustee. [Article 30, sub-subparagraph 1a)(ii)]. This will also be the case for unitholders in the MIT that are life companies or superannuation entities to which the MIT income is allocated for tax purposes, where such entities are liable to tax in Australia on their worldwide income. For example, a fringe benefit is provided when an employer allows an employee to use a work motor vehicle for private purposes, gives an employee a subsidised loan, or pays an employees private health insurance costs. [Article 10, subparagraph (a)], 4.42 Where a taxpayer has adopted an accounting period ending on a date other than 30 June, the accounting period that has been substituted for the year of income beginning on 1 July in the calendar year next following the date on which this Agreement enters into force will be the relevant year of income for the purposes of the application of such Australian tax. 2.429 Where a taxpayer has adopted an accounting period ending on a date other than 30 June, the accounting period that has been substituted for the year of income beginning on 1 July next following the date on which the Convention enters into force will be the relevant year of income for the purposes of the application of such Australian tax. 5.52 The revised provisions in the Income from Employment Article will ensure that an employees remuneration during their shortterm visits on secondment to one country is taxable only in the country of residence of the employee. However, such remuneration will be taxable only in the other country if the services are rendered in that other country; and, the recipient is a resident of, and a national of, that other country; or. 5.1 Tax treaties facilitate international investment by removing or reducing tax barriers to cross-border movement of people, capital or technology. 4-5; Income Tax Assessment Bill (No. 2.437 The Convention would correspondingly cease to be effective in New Zealand for the purposes of: withholding tax on income derived by a non-resident, in relation to income derived on or after the first day of the second month next following that in which the notice of termination is given; and. [Article 11, paragraph 2(b)], 4.47 The Jersey Agreement will also terminate and cease to be effective if the Jersey Information Exchange Agreement is terminated. 5.49 Article 13 (Alienation of Property) better aligns with Australias domestic law treatment and international treaty practice by providing for taxation of certain capital gains only in the alienators country of residence. Reduces the rate of royalty withholding tax to a maximum of 5percent of the gross royalty payment and extends the meaning of royalty to include spectrum licences. The measures identified can be characterised as being an integral part of the administration of the two countries economic and tax policy and the collection of their taxes. However, it does not include transport where the ship or aircraft is operated solely between places in the other country; that is, where the place of departure and the place of arrival of the ship or aircraft are both in that other country, irrespective of whether any part of the transport occurs in international waters or airspace. Australia: tax treaties - GOV.UK New Zealand may also tax but, under Article 23 (Elimination of Double Taxation), would be obliged to give credit for the Australian tax paid on the fringe benefit if it was ordinary employment income. The existing treaty maintains the domestic tax law treatment where the taxation treatment of the income, profit or gain from the disposal of property is not subject to specific rules in the treaty. To be defined as a DLC arrangement, the DLC must have, amongst other things, common (or almost identical) boards of directors. 2.408 The words by reason of its nature as such in paragraph 5 indicate that any time limits and priority rules to which the paragraph applies are only those that are specific to unpaid taxes. [Article 24, subparagraph 5c)]. In this case, an entity which is treated for tax purposes in New Zealand as a resident company, derives royalty income from Australia. The Second Protocol will enter into force on the last date on which diplomatic notes are exchanged notifying that the domestic processes to give the Second Protocol the force of law in the respective countries has been completed. financial institutions, provided, in the case of interest paid from NewZealand, that the 2percent approved issuer levy (AIL) has been paid. 2.141 Under Australian law the place where an interest in land, natural resources or standing timber, such as a lease, is situated (situs) is not necessarily where the underlying property is situated. Before concluding that the company is not entitled to benefits under this subparagraph (for example, because the arrangements had a principal purpose of obtaining such benefits), the competent authority is required to consult with the competent authority of that companys country of residence. The mutual agreement procedure will continue to apply in respect of other issues. where a person that is not an individual is a dual resident, the entity will be deemed, for the purposes of the Jersey Agreement, to be a resident of the country in which its place of effective management is located [Article 4, paragraph 4]. Any excess part of the interest remains taxable according to the domestic law of each country but subject to the other Articles of the Convention. However, Article 24 does not restrict either country from applying provisions designed to prevent avoidance or evasion of taxes (for Australia such measures include thin capitalisation, dividend stripping, transfer pricing and controlled foreign companies measures), rebates or credits for dividends paid by resident companies, research and development concessions, consolidation rules or capital gains deferral rules [Article 24]. 2.93 The provision achieves this by treating the MIT as an individual resident in Australia and the beneficial owner of the income for purposes of applying the Convention to income received by the MIT, where the MIT meets certain specified conditions. [Article 7, paragraph 4]. assessable income but in respect of which there is a tax offset that results in the rate of income tax applying to that amount equal to 0percent. 2.320 Paragraph 3 also applies where the country in which the income arises regards the income as derived by a resident entity, while the other country regards the entity as fiscally transparent and allocates the income to its own residents who are participants in the entity (see Example 2.6). 5.23 This option would rely on the existing tax treaty and Protocol measures with an additional amending second Protocol covering both countries desired changes. 2.147 The taxing of these profits depends on whether they are attributable to the carrying on of a business through a permanent establishment in that country. It also means that where the listed activities are not preparatory or auxiliary in relation to the enterprise, but instead constitute core business activities of the enterprise, the enterprise will not be excluded from having a permanent establishment if it satisfies the primary meaning in paragraph 1. No withholding tax will apply to a dividend paid from an Australian resident company to a NewZealand resident company which holds 80percent of the voting power of the paying company where its principal class of shares is listed and regularly traded on a recognised stock exchange. 2.226 This Article in general allows both countries to tax royalty flows but limits the tax of the country of source to 5 per cent of the gross amount of royalties beneficially owned by residents of the other country. Webthe operation of the Australia-New Zealand double tax treaty. 2.269 Accordingly, Australia would also be entitled to tax that remuneration, in accordance with the general rule of the ITAA 1997 that a resident of Australia remains subject to tax on worldwide income. 2.64 The same term may have a differing meaning and a varied scope within different Acts relating to specific taxation measures. This will apply even though the student or apprentice may qualify as a resident of the country visited during the period of their visit. 2.113 Paragraph 5 of the Article provides further rules in respect of services performed for the same project or connected projects (those described in paragraph 2.111). This is illustrated by the following examples which are variations on some of the examples above. 2.421 Paragraph 1 of this Article requires Australia and New Zealand to consult each other every five years regarding the operation of the Convention to ensure that it continues to operate effectively in avoiding double taxation and preventing tax evasion. This will mean that New Zealand is precluded from taxing Kylie on the gain that accrued on the house during the period of Kylies residence in Australia. 2.278 This Article relates to remuneration received by a resident of one country in the persons capacity as a member of a board of directors of a company which is a resident of the other country. Australia and New Zealand residents are regularly caught up in both countries superannuation systems. Treaty benefits in respect of such income will be granted where: the beneficiary, member or participant is a resident of the other country; and. in NewZealands case, the securities markets (other than the NewZealand Debt Market) operated by the NewZealand Exchange Limited. The inclusion of the two definitions is intended to clarify that income from the performance of professional services or other activities of an independent character is dealt with under Article 7 (Business Profits) and not Article21 (Other Income). 2.218 However, consistent with Australias interest withholding tax provisions, an Australian source is not deemed in respect of interest that is an expense incurred by an Australian resident in carrying on a business through a permanent establishment outside both Australia and NewZealand (that is, the permanent establishment is in a third country). Where the Commissioner cannot ascertain the arms length consideration, it is deemed to be such an amount as the Commissioner determines. Treaty relief will not apply to income derived by any partners that are not residents of Australia for purposes of the Convention (in this example, X Co). 2.319 In the case of Australia a similar outcome is achieved in domestic law by subsection 770-130(2) of the ITAA 1997. In respect of any income year beginning on or after 1 July in the calendar year next following the date on which the Agreement enters into force. These provisions will reduce compliance burdens significantly. Such people are referred to as dependent agents. [Article 25, paragraph 2]. [Article 14, paragraph 4]. The first criterion that must apply is the appointment of common (or almost identical) boards of directors. [Article 5, paragraph 9], 2.134 Generally, a subsidiary company will not be a permanent establishment of its parent company. In the case of payments arising in Australia a retirement benefit scheme includes a superannuation fund and a retirement savings account and in the case of New Zealand includes any superannuation scheme. 5.7 Australia seeks an appropriate balance between source and residence country taxing rights. However, international consideration by such forums as the OECD and consultation with business has indicated that a modern tax treaty, including among other things reductions in withholding tax rates on payments to nonresidents, provide a clear positive benefit to trade and investment relationships between the countries. A country may not make an adjustment to the profits for a year of income where a period of seven years has expired from the date on which the enterprise completed the filing requirements for that year of income in that country. During negotiations, the delegations noted that: It is understood that the term naturally-occurring in (paragraph 2) refers to both forests and fish.. Thus for example, if New Zealand agreed in a future treaty with another country to grant an interest withholding tax exemption for financial institutions, without a requirement that AIL be paid, or agreed to a withholding tax rate lower than 10percent in the event AIL was not paid, New Zealand would be obliged to negotiate with Australia to provide similar outcomes for Australian financial institutions. 5.85 The Convention responds to businesses desire for greater certainty and more competitive withholding tax rate limits in Australias tax treaty network. [Article 12, subparagraph 3d)]. A 5percent rate limit applies to other dividends where the dividend recipient is a company that holds directly at least 10percent of the voting power of the company paying the dividend. [Article 25, paragraph 1], 2.363 If the persons claim seems to the competent authority to which the case has been presented to be justified, and that competent authority is not itself able to solve the problem, then the competent authority is required to seek to resolve the case by mutual agreement with the competent authority of the other country, with a view to avoiding taxation not in accordance with the Convention. [Article11, subparagraph4a)]. Australia regards the entity as fiscally transparent and taxes the Australian resident participant in the entity on the interest income. 2.376 As discussed in the OECD Model Commentary, it is not intended that the arbitration mechanism be an alternative to the mutual agreement procedure. Unlike the equivalent provision in the existing New Zealand Agreement, paragraph3 will also apply to league competitions that involve clubs from a third country, such as the Super 14 rugby competition. 2.136 This Article provides that the income of a resident of one country, from real property situated in the other country, may be taxed by that other country. In such case Kent Co is considered to be entitled to equivalent benefits to those provided under paragraph 3. [Article10, paragraphs 1 and2], 2.186 A rate limit of 5percent will apply for dividends paid in respect of company shareholdings that do not qualify for the intercorporate dividend exemption under paragraph 3 of this Article, but constitute a direct voting interest of at least 10percent. In the course of negotiations, the two delegations noted: With respect to taxation of income from insurance, it is understood that the term insurance includes reinsurance., 2.156 The principles of this Article will apply to profits which are derived by a resident of one of the countries (directly or through one or more interposed trusts) as a beneficiary of a trust, except where the trust is treated as a company for tax purposes. The profits from the carriage of the passengers shipped in and discharged at a place in Australia would be covered by paragraph 2 of Article 8, notwithstanding that the aircraft passes through international airspace. The Convention further refines the concept of when a permanent establishment is taken to exist and the level of activity to constitute a permanent establishment. The provisions in the Convention correspond to international practice and comparable provisions in Australias other tax treaties. No Australian tax would be payable on the employment income if the student qualifies as a resident of Australia during the visit and the taxable income of the student does not exceed the tax-free threshold applicable to Australian residents for income tax purposes. 2.61 Section 12400 of Schedule 1 to the Taxation Administration Act1953 defines the term managed investment trust. As no imputation credits arise for non-residents, there is no possibility of excess imputation credits arising. Payments made from abroad to visiting students or business apprentices for the purposes of their maintenance, education or training will be exempt from tax in the country visited [Article 20]. New Zealands fringe benefits tax regime operates in a similar fashion, but it is calculated on the grossedup taxable value at the employees notional marginal tax rate. In line with the objectives under the CER, encouraging the free movement of people between Australia and New Zealand in this way removes some of the behind-the-border impediments to trade. 5.25 A new tax treaty would be largely based on the current OECD Model, with some mutually agreed variations reflecting the economic, legal and cultural interests of the two countries. The intention is that they not be prohibited from doing so because other regulatory requirements prevent it. 2.277 They include accommodation allowances or housing benefits but do not include a benefit arising from the acquisition of an option over shares under an employee share scheme. 2.354 The two Governments may agree in an Exchange of Notes that other domestic law provisions will not be affected by the requirements of Article 24. Countries generally tax their residents on their world wide income. [Article 8, paragraphs 1 and 3]. Identifiable costs to revenue associated with reductions in the rates of withholding tax and the change in taxing rights for pensions have been estimated as $142million over the forward estimates. However, it does not include arrangements that have as one of their main purposes the obtaining of benefits under this rule. The similar treatment in the Convention aligns treatment, where possible, with Australias recent tax treaties, maintains the integrity of Australias treaty network and discourages treaty shopping (and the consequent degradation of the tax base of countries where the costs of capital and intellectual property are higher under their treaties as a result of the higher withholding tax rates). The offset is subject to the normal limits discussed in paragraph 2.313 on paragraph 1 of Article 23. Rules in the Convention will protect nationals and businesses from tax discrimination in the other country and gives them private rights of appeal. The Convention will replace the Agreement between the Government of Australia and the Government of NewZealand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income that was signed in Melbourne on 27January1995, and the Protocol Amending the Agreement between the Government of Australia and the Government of NewZealand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income that was signed in Melbourne on 15November2005 (together referred to as the existing New Zealand Agreement). CCH Pinpoint Tax Treaties and Agreements | Wolters Kluwer In the case of Australia it includes partnerships subject to Division 5 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) (but not corporate limited partnerships subject to Division 5A of Part III), and trusts which are subject to Division6 of Part III where the beneficiary of the trust is presently entitled to the income and assessable accordingly (but not a corporate unit trust or public trading trust subject to Division 6B or 6C of Part III). This will encourage the free movement of workers between Australia and NewZealand. Provides for access to arbitration if mutual agreement on issues of fact is not reached within two years. 2.259 Paragraph 7 protects Australias taxing rights in respect of income, profits or gains from the alienation of any property of a person who is, or has been, a resident of Australia during the year in which the property is alienated or during the six years immediately preceding that year. It also applies to interest, administrative penalties and costs of collection or conservancy related to such amount. [Article 3, subparagraph 1h)], 2.53 The Convention defines national by reference to an individuals nationality or citizenship. This would include for example, club-level rugby, netball, basketball and soccer competitions which take place in both countries. This means that an enterprise that merely leases substantial equipment to another person for that other persons own use in a country, would not be deemed to have a permanent establishment in that country under these provisions. [Article 24, paragraph 4]. 2.170 Each country has the right to apply its domestic law relating to the determination of the tax liability of a person (for example, Australias Division 13 of Part III of the ITAA 1936) to enterprises, including in cases where the available information is inadequate, provided that such provisions are applied, so far as it is practicable to do so, consistently with the principles of the Article. While a reduction in maximum withholding tax rates and the pensions exemption involve a cost to revenue, there are expected to be benefits to revenue and to the wider economy arising out of increased business and investment activity, with the most direct benefits accruing to business. Kylie later sells the house for $400,000 while a resident of NewZealand. 2.33 In the case of Australian managed investment trusts, an exception to the discussion here is created by paragraph 7 of Article 4 (Resident) (see paragraphs 2.89 to 2.96). 2.350 Under NewZealands company grouping rules, companies in the same group can group losses either by election or by subvention payment. 2.55 The definition of person in the Convention generally accords with Australias normal tax treaty practice and includes individuals, companies and any other body of persons. Assume provisions regulating an Australian industry require that at least two-thirds of the directors of a company operating in that industry be Australian citizens. If New Zealand also treats the third State legal entity as a company for its tax purposes, paragraph 2 of Article 1 (Persons Covered) would not apply but the outcome would still be the same; that is, no benefits under the Convention. In this case, NewZealand would not be required to extend source tax reductions on the interest income under Article 11 (, Eligibility for the treaty benefits will also be subject to the application of any anti-avoidance measures contained in the specific income Article (in this example, paragraph 7 of Article 12 (, Where dividends, interest or royalties arising in one country are derived through a trust and are taxed in the other country in the hands of the trustee, paragraph 4 of Article 3 (. ) However, competent authorities are not entitled to request information from the other country which is unlikely to be relevant to the tax affairs of a taxpayer, or to the administration and enforcement of tax laws. The treaty sets out various, cumulative criteria by which such an arrangement can be identified. For other Australian taxes, on income, profits or gains: of any year of income beginning on or after 1July next following the date on which the Convention enters into force. [Article 5, subparagraph4c)]. Pensions that are exempt in the country of source will also be exempt in the country of residence. It includes any area beyond the territorial sea under NewZealand legislation and in accordance with international law as an area in which NewZealand may exercise sovereign rights with respect to natural resources. ATO staff, taxpayers and tax professionals will need to be made aware of the entry into force of the Jersey Agreement. 2.35 The term income tax includes Australian income tax imposed on capital gains. Currently, these concessions are only available to companies that are incorporated in Australia. Updates the meaning of permanent establishment in Article 5 (Permanent Establishment). Profits derived from the transport of the goods loaded in Hobart and discharged in Melbourne would be profits from the carriage of goods shipped in and discharged at a place in, Permissible rate of source country taxation, Exemption for certain cross-border intercorporate dividends, Under subparagraph b) of paragraph 3 of this Article, an exemption applies to. However, they will not be so excluded if those services are performed by that individual on a regular or frequent basis. However, this Article does not allocate sole taxing rights to New Zealand in that situation. In such cases the dividends paid by the dual resident company out of profits arising in one of the countries may be taxed in the country in which those profits arise in accordance with domestic law of that country. NewZealand taxes that royalty income at 30 per cent as foreign income of a New Zealand resident company and gives a foreign tax credit for the 5per cent tax rate set in paragraph 2 of Article 12, so collecting a net 25per cent tax. 4.7 This Article specifies the existing taxes of each country to which the Jersey Agreement applies. 2.355 This Article applies to taxes of every kind and description imposed on behalf of the Contracting States, or their political subdivisions. The exclusion of payments for the use of equipment from the Royalties Article reflects common international tax treaty practice and recognises that source country taxation on a gross basis may be excessive given low profit margins. Once it enters into force the Jersey Agreement will apply as follows, New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002, Updates the meaning of permanent establishment in Article 5 (. Accordingly, Jersey will not have to forego tax in accordance with the Jersey Agreement on income derived by Norfolk Island residents (which will not be subject to Australian tax). other conditions in the Convention (such as the specific antiavoidance measures and limitation of relief) are satisfied. It also covers payments for the use of, or the right to use, images or sounds, however reproduced or transmitted, for use in connection with broadcasting. The wording in this provision in the Convention reflects NewZealands treaty practice and the wording used in the United Nations Model Double Taxation Convention between the Developed and Developing Countries. The arbitration provision also provides businesses with a mechanism for the timely resolution of disputes regarding the application of the tax treaty to issues of fact. 3.13 The purposes for which the exchanged information may be used and the persons to whom it may be disclosed are restricted in a manner which is consistent with the approach taken in the OECD Model. [Article 5, subparagraph 2(a)]. Profits from the operation of ships or aircraft for nontransport activities are treated under Article 7 (Business Profits) of the Convention in the same way as profits derived from the use of other types of substantial equipment, such as mining equipment and trucks. It therefore avoids any difficulties arising under domestic law source rules in respect of the exercise by Australia of the taxing rights allocated to Australia by the Convention over income derived by residents of New Zealand. [Article 3, subparagraphs 1c) and f)]. 2.333 The tax on permanent establishments of enterprises of the other country shall not be levied less favourably than on the countrys own enterprises carrying on the same activities in similar circumstances. 2.74 The second sentence of paragraph 1 of the Article deals with a person who may be considered to be a resident of a country according to its domestic laws but is only liable to taxation on income from sources in that country, such as foreign diplomatic and consular staff. For Australian tax purposes, it also extends, for example, to the tax-free threshold which may be considered not to be based either on civil status or family responsibilities. 2.102 The primary meaning of permanent establishment is expressed as being a fixed place of business through which the business of an enterprise is wholly or partly carried on.

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