ATO Interpretative Decision

ATO ID 2006/160

Income tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is income derived by an Australian resident taxpayer, from performing freelance journalism in Australia for an Italian radio station, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. Income derived by an Australian resident taxpayer from freelance journalism performed in Australia for an Italian radio station is assessable under subsection 6-5(2) of the ITAA 1997.

Facts

The taxpayer is a resident of Australia for tax purposes.

The taxpayer is a freelance journalist reporting news items from Australia to a radio station in Italy.

The taxpayer is not under any employment contract with the Italian radio station. The editors of the Italian radio station contact the taxpayer in Australia to request reports on any news from Australia, that they think is of interest to the Italian public, to broadcast in their news bulletin or current affairs programs.

Reasons for Decision

Subsection 6-5(2) of the ITAA 1997 provides that assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. The amounts paid to the taxpayer are ordinary income for the purposes of subsection 6-5(2).

However, in determining the liability to Australian tax it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (the Agreements Act) that exists between Australia and Italy.

Subsection 4(1) of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and ITAA 1997 so that those Acts are read as one. Subsection 4(2) states the Agreements Act effectively overrides the ITAA 1936 and the ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Schedule 21 to the Agreements Act contains the Australia - Italy Double Taxation Convention (the Italian Convention). The Italian Convention operates to avoid the double taxation of income received by Australian and Italian residents.

Article 14(1) of the Italian Convention provides that income derived by an individual who is a resident of Australia in respect of professional services or other independent activities of a similar character shall be taxable only in Australia unless the taxpayer has a fixed base regularly available to him in Italy for the purpose of performing his activities. If the taxpayer has such a fixed base, the income may be taxed in Italy but only so much of it as is attributable to that fixed base.

The taxpayer performs freelance journalism services from Australia for an Italian radio station and does not have a fixed base available to them in Italy. The question that requires consideration is whether the services provided by the taxpayer to the Italian radio station fall within the meaning of 'professional services or other independent activities of a similar character' for the purposes of Article 14 of the Italian Convention.

The term 'professional services' is defined in a limited fashion in Article 14(2) as including independent scientific, literary, artistic, educational or teaching activities, as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants. As 'professional services or other independent activities of a similar character' are not fully defined in Article 14, recourse may be had to domestic law under Article 3(3) of the Italian Convention, unless the context requires otherwise.

The term, 'professional services or other independent activities of a similar character', is not specifically defined in Australian tax law. However, the definition of 'income from personal exertion' in sec 6(1) of the ITAA 1936 includes income from employment and independent fee income. As Article 15 of the Italian Convention deals with dependent personal services, which generally means income from an employment, it is considered that the context of the Convention would limit the meaning of 'professional services or other independent activities of a similar character' to independent fee income.

Furthermore, as McHugh J stated in Thiel v. FC of T (1990) 171 CLR 338; 90 ATC 4717; (1990) 21 ATR 531 the heading of an article must be taken into consideration in determining the meaning of words or terms contained within an article. Consistent with the heading 'Independent Personal Services', it is considered that Article 14 includes all independent personal services, that is, personal services provided outside a formal employment arrangement.

As Australia has the sole taxing right under Article 14(1) of the Italian Convention, the income derived by the taxpayer from freelance journalism performed in Australia for the Italian radio station is subject to Australian income tax under subsection 6-5(2) of the ITAA 1997. Accordingly, no amount should be deducted from such payments in Italy.

Year of income:  30 June 2006

Legislative References:
Income Tax Assessment Act 1936
   section 6(1)

Case References:
Thiel v. Federal Commissioner of Taxation
   (1990) 171 CLR 338
   90 ATC 4717
   (1990) 21 ATR 531

Related Public Rulings (including Determinations)
Taxation Ruling TR 2001/13

Keywords
Double tax agreements
Italy
International tax
Treaties
Professional services sector

Business Line:  Public Groups and International

Date of publication:  7 July 2006

ISSN: 1445-2782