ATO Interpretative Decision
ATO ID 2006/7
Income tax
Assessability of employment income received from a New Zealand resident company operating in Australia by a New Zealand resident individualFOI status: may be released
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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 employment income received by a New Zealand individual resident, working for a New Zealand resident company in Australia, assessable under section 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The employment income received by a New Zealand individual resident, working for a New Zealand resident company in Australia, is not assessable under section 6-5(3) of the ITAA 1997.
Facts
The taxpayer is a New Zealand individual resident and is not a resident of Australia for income tax purposes.
The taxpayer is employed by the New Zealand resident company which provides design and drafting services in Australia.
The New Zealand resident company contracts with an independent agent in Australia to secure clients requiring these services and does not have a permanent establishment in Australia.
The taxpayer is also the co-director and shareholder of the New Zealand company and is present in Australia for less than 183 days to perform the services.
The New Zealand company pays the taxpayer salary in connection with the duties carried out in Australia.
The taxpayer's salary will be subject to tax in New Zealand.
Reasons for Decision
Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year and other ordinary income that a provision includes as assessable income on some basis other than having an Australian source.
Salary and wages are ordinary income under subsection 6-5(3) of the ITAA 1997.
In determining the liability to tax on employment income received by a non-resident, 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).
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 4 to the Agreements Act contains the tax treaty between Australia and New Zealand (the New Zealand Agreement). The New Zealand Agreement operates to avoid the double taxation of income received by Australian and New Zealand residents.
Article 15(1) of the New Zealand Agreement provides that subject to the provisions of Articles 16, 17, 19 and 20, salaries, wages and other similar remuneration derived by individual who is a resident of New Zealand in respect of an employment shall be taxable only in New Zealand unless the employment is exercised in Australia. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in Australia.
Article 15(2) of the New Zealand Agreement provides that in spite of the provisions of paragraph 1, remuneration derived by an individual who is a resident of New Zealand in respect of employment exercised in Australia shall be taxable only in New Zealand if:
- (a)
- the recipient is present in Australia for a period not exceeding 183 days in any 12 month period commencing or ending in the year of income concerned; and
- (b)
- the remuneration is paid by, or on behalf of, an employer who is not a resident of Australia; and
- (c)
- the remuneration is not deductible in determining the taxable profits of a permanent establishment or fix base which the employer has in Australia; and
- (d)
- the remuneration is, or upon application of this Article will be, subject to tax in New Zealand.
The facts indicate that all requirements of Article 15(2) of the New Zealand Agreement are satisfied. The taxpayer's Australian sourced income will therefore not be subject to tax in Australia.
Accordingly, taxing rights are assigned to New Zealand and the taxpayer's income is not assessable in Australia under section 6-5(3) of the (ITAA 1997).
Date of decision: 21 December 2005Year of income: Year ended 30 June 2006
Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(3)
section 4
Schedule 4
Schedule 4, Article 15(1)
Schedule 4, Article 15(2)
Keywords
Assessable income test
Directors remuneration
Double tax agreements
Income tax
New Zealand
Shareholders
ISSN: 1445-2782