This Ruling, issued on Wed 28.5.2014, clarifies the circumstances in which the ships and aircraft article of Australia’s tax treaties allocates Australia a right to tax amounts falling within s 129 of the ITAA 1936. It applies to treaty partner residents who carry on an enterprise and derive s 129 income in respect of carriage of passengers, livestock, mail or goods shipped in Australia.
Broadly, the Ruling states Australia does not have the right to tax amounts of s 129 income in respect of the carriage of passengers or goods that are discharged at a place outside Australia, which falls under para 1 of the standard ships and aircraft article where they are derived by a relevant treaty partner resident.
It also indicates that Australia does have the right to tax s 129 income from ship operations confined solely to places in Australia under para 2 of the standard ships and aircraft article (ie including an internal leg of an international voyage and “voyages to nowhere”).
The Ruling also specifically sets out the tax consequences in relation to various treaty countries. It includes 6 examples of various arrangements and sets out the consequences of each.
The Ruling was previously issued as Draft TR 2013/D5 and is largely the same.
DATE OF EFFECT: TR 2014/2 applies to years of income commencing both before and after its date of issue.
[LTN 101, 28/5/14]
Extract from the Income Tax Assessment Act 1936
129 – Taxable income of ship-owner or charterer
Where a ship belonging to or chartered by a person whose principal place of business is out of Australia carries passengers, live-stock, mails or goods shipped in Australia, 5% of the amount paid or payable to him or her in respect of such carriage, whether that amount is payable in or out of Australia, shall be deemed to be taxable income derived by him or her in Australia.
Extract from the Australia-Taipei Double Tax Treaty
Article 8 – Ships and aircraft
1. Profits derived by an enterprise of a territory from the operation of ships or aircraft shall be taxable only in that territory.
2. Notwithstanding the provisions of paragraph 1, such profits shall be taxed in the other territory to the extent that they are profits derived directly or indirectly from ship or aircraft operations confined solely to places in that other territory.
3. The profits to which the provisions of paragraphs 1 and 2 apply shall include profits from:
(a) the lease of ships or aircraft on a full time, voyage or bareboat basis, and of containers and related equipment, which is merely incidental to the international operation of ships or aircraft by the lessor, provided that the leased ships or aircraft, or the containers and related equipment, are used in international operations by the lessee; and
(b) the operation of ships or aircraft derived through participation in a pool, a joint business or an international operating agency.
4. For the purposes of this Article, profits derived from the carriage by ships or aircraft of passengers, livestock, mail, goods or merchandise which are shipped in a territory and discharged at a place in that territory shall be treated as profits from ship or aircraft operations confined solely to places in that territory.