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  • Timor Sea Treaty – Joint Petroleum Development Area instructions 2020

    Who should use these instructions?

    Use these instructions if you have earned income for performing work or services in the Joint Petroleum Development Area (JPDA) as defined in the Timor Sea Treaty (the former treaty). To ensure you fill in your tax return correctly, either use these instructions yourself or give them to your registered tax agent.

    If you were an Australian resident for tax purposes during 2019–20, use part 1 of these instructions.

    If you were a Timor-Leste resident for tax purposes, see part 2 of these instructions for JPDA income you derived during 1 July 2019 to 29 August 2019.

    If you were a resident of a country other than Australia or Timor-Leste for tax purposes, use part 3 of these instructions for JPDA income you derived during 1 July 2019 to 29 August 2019.

    If you:

    • were not an Australian resident for tax purposes, and
    • did not earn JPDA income during 1 July 2019 to 29 August 2019

    your JPDA income is not taxable in Australia.

    Background

    In 2018 Australia and Timor-Leste entered the Timor Sea Maritime Boundaries Treaty (the 2018 treaty). The 2018 treaty transitions the JPDA to Timor-Leste's exclusive jurisdiction, and came into effect for Australia on 30 August 2019.

    The former treaty ceased to be in force from 30 August 2019, however certain taxation arrangements that applied under Annex G of the former treaty continue to apply for Australian resident employees (but not for independent contractors) working in the JPDA.

    Source of income

    Under the former treaty, the JPDA was deemed to be part of Australia and of Timor-Leste for the purposes of the tax laws of Australia and Timor-Leste.

    Under the 2018 treaty, from 30 August 2019 the JPDA is deemed to be exclusively part of Timor-Leste for the purposes of those tax laws. Income derived from working in the JPDA on or after 30 August 2019 is deemed to have been sourced only in Timor-Leste.

    From 30 August 2019, the following changes apply:

    • For Australian residents
      • JPDA income is taxed at resident rates of tax for individuals
      • the foreign income tax offset (FITO) for an employee is the lesser of
        • Australian tax payable on the net assessable JPDA income (JPDA income less allowable deductions relating to that income)
        • Timor-Leste tax paid on JPDA employment income
         
      • the FITO for an independent contractor is worked out under the ordinary FITO rules.
       
    • For foreign residents
      • JPDA income is not taxed in Australia.
       

    Residency status

    Residency status is determined by the laws of each country.

    Generally, we consider you to be an Australian resident for tax purposes if you have:

    • always lived in Australia or you have come to Australia and live here permanently
    • been in Australia for more than six months during the income year (unless your usual home is overseas and you do not intend to live in Australia).

    The standards we use to determine residency status are not the same as those used by the Department of Home Affairs.

    If you are not sure of your residency status, see Work out your tax residency or phone 13 28 61.

    Zone tax offset

    The JPDA does not qualify as a remote or isolated area of Australia for purposes of the zone tax offset.

    Last modified: 28 May 2020QC 62045