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Taxation on the Basis of Source in Australia

17.69. Except where the income is dividends or interest and withholding tax applies, origin of income in Australia is tested by judicially established principles, and by a few statutory provisions, which are concerned with the interpretation of the word ‘source’ in section 25. That section subjects income of non-residents to Australian tax where the income has a source in Australia. The judicially established principles, for the most part, yield no determinate rules. Indeed, it has often been asserted by the Courts that source refers to ‘something which a practical man would regard as a real source of income and that the ascertainment of the actual source of a given income is a practical hard matter of fact’. The matters that the Courts have tended to think important, as indicating a source in Australia, rather emphasise formal aspects of a transaction than the place of the economic activity generating the income. In this there is some conflict with the assertion of the importance of the view the ‘practical man’ would take. The matters thought important by the Courts in determining the


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source of income received in respect of the use of industrial or commercial information are the place of the contract to supply the information and the place where the information is handed over, not the place where the knowledge is used. The matters thought important in determining the source of interest are the place of the contract of loan and the place where the loan moneys were provided, not the place where the moneys are used.

17.70. In the Committee's view, determinate rules are desirable in this area of the law. The rules, where possible, should seek to identify income as having a source in Australia where it can be seen to be the product of economic activity in this country. Proposals in regard to the appropriate rules are made in Appendix A to this chapter.

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