Dual taxation - Australia

[Max W]

Client is naturalized citizen and resident of US and has bank accounts in Australia that generate about $10,000/yr in interest.

 

By treaty, Australia is allowed tax up to 10% of the interest.

 

It is not clear in reading the tax treaty (paragraph 6) if the taxed interest income is exempt in the USA.

 

Any ideas?

[Lion EA]

Worldwide income.  But, a foreign tax credit is available for taxes paid to Australia on the same income.

[Max W]

I am aware of the WW Income and the tax credit.  That is not what I was asking.  I am asking if interest from AUS source is exempted by the US-AUS tax treaty, specifically paragraph 6.

[Lion EA]

Does the treaty say it is?

[Max W]

Ahah! That's the rub.

 

Article 11 that deals with interest is on page 15-16 or the following-

http://www.irs.gov/pub/irs-trty/aus.pdf

 

How would you interpret this?

Maybe someone that has dealt with AUS issues can answer.

[Lion EA]

(1) Interest from sources in one of the Contracting States, being interest to which a resident of the

other Contracting State is beneficially entitled, may be taxed in that other State.

 

Interest from sources in Australia, being interest to which a resident of the US is beneficially entitled, may be taxed in the US.

[Max W]

Thanks, that's the way I interpreted 3 years ago, but wanted a 2nd opinion because the client has been coming up with dozens of questions and hypothetical scenarios of living part year here and part year there, giving up her US citizenship, and on and on.