ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers in principle. But it is expected to have no practical effect as it is in line with current practice. Change 157: Old double taxation relief arrangements: references to surtax: Schedule 1 (section 789 of ICTA)
This change amends how provisions for exemption from surtax in old double taxation relief arrangements are to be interpreted in relation to dividend income.
Section 789(2)(a) of ICTA provides that any provision in double taxation arrangements made before 30 March 1971 for income to be exempt from surtax is to be applied on the basis that:
	in relation to income to which section 1A of ICTA applies, the lower rate is applied instead of the higher rate; and
	for all other income, the basic rate is applied instead of the higher rate.
That provision was not amended in 1997 when the dividend ordinary rate was introduced (with effect from April 1999). Since dividend income is income to which section 1A applies it follows that, in strictness, dividend income subject to these old double taxation arrangements is to be charged at the lower rate (instead of at the dividend upper rate). That is not the intention. The amendment ensures that the rate at which this income is charged in place of the dividend upper rate will be the dividend ordinary rate (instead of the dividend upper rate).