Double Taxation Agreements (DTA’s)

What is a double taxation agreement? An individual can be a resident of more than one country at the same time.

In this circumstance, a Double Tax Agreement (DTA) may operate to preclude or limit Australia’s taxing right over certain classes of income derived by an individual who qualifies as a resident of Australia for domestic law purposes but is solely a resident of a treaty partner country for purposes of the relevant DTA.

Australia has entered into double taxation agreements with many countries. They operate to prevent double taxation and fiscal evasion, and foster co-operation between Australia and other international tax authorities by enforcing their respective tax laws.

Double Taxation Treaties

Double taxation agreements generally override domestic income tax law provisions that produce an outcome inconsistent with the terms of the treaty. Australian tax treaties aim to provide:

The sourcing country with a taxing right over selected types of income, profits or gains, sometimes at limited rates.

Each country with the right to tax the income of it’s own residents under their own domestic laws, so the tax treaty will not always restate this rule.

Tax relief against it’s own tax if the income has been taxed in the country of source (in Australia, the general foreign tax credit provisions are applied).

If the country of residence has the sole taxing right over certain types of income, profits and gains, this is usually expressed as ‘shall be taxable only in that country’.

Where the country of source imposes a limited rate of tax on selected types of income profits or gains (for example, a withholding tax), this is usually expressed as ‘may be taxed in that other state’.

Most tax treaties also provide a ‘tie-breaker’ test under which a dual resident is deemed to be a resident solely of one of the two countries for tax purposes.

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