ATO Interpretative Decision
ATO ID 2004/82 (Withdrawn)
Income Tax
Assessability of remuneration paid by a fully government owned and controlled body of the Japanese Government to a Japanese resident employed in AustraliaFOI status: may be released
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This ATO ID is withdrawn as the issue is now dealt with in Taxation Ruling 2005/8.This document incorporates revisions made since original publication.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.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the remuneration paid by a fully government owned and controlled body of 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(3) of Schedule 6 to the International Tax Agreements Act 1953 (the Agreements Act) does not apply 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 Japanese Government body does not compete with other similar commercial bodies.
The taxpayer is discharging government functions for the Government of Japan while in Australia.
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.
Article 14(2) 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.
However, article 14(3) of the Japanese Agreement provides that Article 14 does not apply to payments in respect of services rendered in connection with any trade or business carried on by the Japanese Government.
As the Japanese Government body is fully government owned and controlled by the Government of Japan and does not compete with other similar commercial bodies, it is not considered to be carrying on a trade or business.
Accordingly, article 14(3) of the Japanese Agreement will not apply.
The taxpayer is discharging governmental functions for the Japanese Government and is not an Australian citizen or ordinarily resident in Australia. Accordingly, article 14(2) 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.
Date of decision: 7 January 2004Year of income: Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006 Year ended 30 June 2007
Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(3)
section 4
Schedule 6, Article 14(2)
Schedule 6, Article 14(3) Related ATO Interpretative Decisions
ATO ID 2003/448
ATO ID 2001/401
Keywords
Double tax agreements
Foreign government employees
International law
Japan
ISSN: 1445-2782
| Date: | Version: | |
| 7 January 2004 | Original statement | |
| You are here | 12 May 2006 | Archived |