ARTICLE 1

Personal Scope

This Article identifies the persons who come within the scope of the Convention (also referred to as “the Treaty”) and establishes the relationship between it and domestic law.

Paragraph 1 states that, except where the Convention specifically provides otherwise, the Convention applies to residents of the United States and/or Australia. Certain provisions of the Convention may apply to residents of third counties, for example, paragraph 5 of Article 10 (Dividends), paragraph 6 of Article 11 (Interest), and Article 25 (Exchange of Information). The term “resident” is defined in Article 4 (Residence).

Paragraph 2 provides that the Convention may not increase tax above the liability that would result under domestic law or under other agreements between the Contracting States. If domestic law provides a more favorable treatment than the Convention, the taxpayer may apply the provisions of domestic law. For example, if certain interest income derived by nonresidents is exempt from tax by statute, but the Treaty authorizes a tax at source of not more than 10 percent, the statutory exemption will apply. A taxpayer, however, may not make inconsistent choices between the rules of the Internal Revenue Code and the Convention rules.

Paragraph 3 contains the traditional "saving clause" under which each Contracting State reserved the right to tax its residents, as defined in Article 4 (Residence), as if the Convention had not come into effect. The two States also reserve the right so to tax their citizens, individuals electing under their respective domestic laws to be taxed as residents, and in the case of the United States, former citizens whose loss of citizenship had as one of its principal purposes the avoidance of tax. Such former citizens are taxable in accordance with section 877 of the Internal Revenue Code for 10 years following the loss of citizenship.

Paragraph 4 sets forth certain exceptions to the application of the saving clause where other provisions of the Convention present overriding policies. The saving clause does not override the benefits provided under paragraph 2 of Article 9 (Associated Enterprises), relating to correlative adjustments of tax liability, or the benefits of paragraphs 2 or 6 of Article 18 (Pensions, Annuities, Alimony and Child Support), relating to social security payments, alimony and child support. Social security payments and similar public pensions paid by Australia and alimony, child support and similar maintenance payments arising in Australia are taxable only by Australia even though the recipient may be a resident of the United States; similarly, social security payments by Australia to a citizen of the United States, wherever resident, are taxable only in Australia. The benefits provided in Articles 22 (Relief from Double Taxation), 23 (Non

Discrimination), and 24 (Mutual Agreement Procedure), and the source rules of paragraph 1 of Article 27 (Miscellaneous) are also available to residents and citizens of the Contracting States, notwithstanding the saving clause.

In some cases, the saving clause overrides benefits otherwise conferred by the United States on citizens or persons having immigrant status in the United States and benefits otherwise conferred by Australia on citizens or persons ordinarily resident in Australia, but does not override those benefits when conferred on other residents of the respective States. This second category of exceptions to the saving clause concerns the benefits provided under Article 19 (Governmental Remuneration), 20 (Students) and 26 (Diplomatic and Consular Privileges). The term “immigrant status” means a person admitted to the United States as a permanent resident under U.S. immigration laws (i.e., holding a "green card").