DTA with Australia
Double tax agreement is a convention between New Zealand Government and Australia Government for the purpose of avoidance of double taxation on income and fringe benefit.
1. Persons covered:
It applies to persons who are residents of one or both of the two countries (Article 1). For treaty purpose, a person can only be a resident in one county. The test is in Article 4.
2. Laws covered:
It covers Australia’s and New Zealand’s income tax, fringe benefit tax and any other similar or identical taxes in these two countries (Art2).
3. Permanent establishment (PE) (Art5):
PE would determine in which country income is taxable. PE is a fix place of business through which the business is partly or wholly operates. It includes a branch, an office, a factory, a mine, a quarry, an agricultural property and so on.
PE can also be an individual who stays in the other state for more than 183 days in a twelve months period, and he generates more than 50% of gross revenue of that business, or performs same or related activities as the business does in other state.
Further, an operation of substantial equipment in other state for more than 183 days in a twelve months period can create a PE. An exploration for natural resources for more than 90 days in a twelve months period can create a PE.
However, the followings cannot be considered as a PE: 1.a facility solely used for storage or display goods. 2. a place solely used for purchasing goods and collecting information.
4. Business profit
An enterprise should only pay tax in the state where it carries on business, unless it also operates business in the other states through a PE. Only the profit which is attributable to that PE is taxed in the other state (Art7).
5. Dividend (Art10), Interest (Art11), Royalties (Art12)
NRWT (non-resident withholding tax) is a tax for non-resident’s income.
• In terms of dividend,
If the shareholder owns less than 10% of the voting power of that company, the NRWT is 15%.
If the shareholder owns 10% or more of the voting power of that company, the NRWT is 5%. If the shareholder owns 80% or more of the voting power of that company and that company is a listed company, the NRWT is 0%.
• NRWT on interest is 10% but it can reduce to 0% if: (a) it is paid to the state, the reserve bank or a local authority (government investment fund). (b) it is derived by a financial institution that is operating wholly independently with the payers.
• NRWT on royalties is 5%.
6. Income From employment (Art14)
Remuneration is only taxed on the state where it is derived. If an employment is also exercised in other state, that part of remuneration derived is taxed on the other state.
However, the remuneration derived by a resident outside his state shall be taxed at his own state if:
• The recipient is in the other state not more than 183 days in a twelve months period, and
• The remuneration is paid by an employer who is not a resident of the other state, and
• The remuneration is not deductible in determining the profits attributable to a PE which the employer is in the other state.
8. Fringe Benefit (Art15)
The Fringe benefit will be taxed only in the state that has the primary tax right. The other state is required to provide relief for the tax imposed.
9. Students (Art20)
If the only purpose is education or training, maintenance payments received from sources outside the state should not be taxed.
10. Elimination of double taxation
The Government will grant tax credit for tax paid outside the state.