Australia tax: Australian-New Zealand tax treaty double taxation

The Federal Court in Australia recently held (in a case decided on 30 October 2009) that the personal services income rules applied to attribute personal services income derived by a company resident in New Zealand to an Australian taxpayer. The Court found that the Australian-New Zealand tax treaty did not apply to relieve the taxpayer from "double taxation," since two different entities were subject to tax on the same income. Tax treaties are not concerned with eliminating "economic" double taxation relief but only "juridical" double taxation. Further, the New Zealand company was not prevented from being a personal services entity merely because it was not a resident. In relation to the goods and services assessment challenged by the taxpayer, the Court ruled that the net amount assessed was excessive, but only to the extent referable to input tax credits claimed in respect of one enterprise. The Court accepted that the taxpayer had been carrying on a forestry enterprise prior to the taxpayer (a partnership) being dissolved, but did not accept that two other lots of activities that the taxpayer had engaged in amounted to an enterprise in either case. Entitlement to input tax credits was denied accordingly.