ATO Interpretative Decision

ATO ID 2003/448 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as the issue is now dealt with in Taxation Ruling 2005/8.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the remuneration paid by the Japanese Government to a Japanese resident employed in Australia assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. Even though the remuneration paid by the Japanese Government to a Japanese resident employed in Australia is assessable under subsection 6-5(3) of the ITAA 1997, Article 14(2) of Schedule 6 to the International Tax Agreements Act 1953 (the Agreements Act) applies and the remuneration is not taxable in Australia.

Facts

The taxpayer is a resident of Japan and a non-resident of Australia for taxation purposes.

The taxpayer is working in Australia for a Japanese Government body.

The taxpayer's main responsibility is the collection and analysis of technological and other scientific information. The taxpayer is discharging government functions for the Government of Japan while in Australia.

The taxpayer has been seconded to work in Australia for 3 years.

Reasons for Decision

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident includes ordinary income derived directly or indirectly from all Australian sources during the income year.

In determining liability to tax on Australian sourced income received by a non resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the Agreements Act.

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Schedule 6 to the Agreements Act contains the double tax agreement and the protocol between Australia and Japan (the Japanese Agreement). The Japanese Agreement operates to avoid the double taxation of income received by Australian and Japanese residents.

Paragraph (2) of Article 14 of the Japanese Agreement exempts from Australian tax remuneration paid by the Government of Japan to an individual for services rendered in the discharge of governmental functions for the Japanese Government unless the individual is an Australian citizen or ordinarily resident in Australia.

The taxpayer is discharging governmental functions for the Japanese Government and is not an Australian citizen or ordinarily resident in Australia. Accordingly, paragraph (2) of Article 14 of the Japanese Agreement exempts from Australian tax the remuneration paid by the Japanese Government.

Consequently, the remuneration paid by the Japanese Government to a Japanese resident employed in Australia is not assessable under subsection 6-5(3) of the ITAA 1997.

Year of income:  Year ended 30 June 2001 Year ended 30 June 2002 Year ending 30 June 2003 Year ending 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   subsection 6-5(3)

Keywords
Double tax agreements
Japan
Treaties
International Tax

Business Line:  Public Groups and International

Date of publication:  20 June 2003

ISSN: 1445-2782