ATO Interpretative Decision

ATO ID 2002/470 (Withdrawn)

Income Tax

• This document has been withdrawn as it was incorrectly published.
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Issue

Is the remuneration you received from an Australian employer for services rendered in Australia exempt from income tax in Australia?

Decision

Is the remuneration you received from an Australian employer for services rendered in Australia exempt from income tax in Australia?

No.

Facts

You are a citizen of the United States of America.

You came to Australia to provide teaching and administrative services to an Australian employer at an Australian University.

You commenced your three-month teaching position in September.

You were present in Australia from August until December.

Reasons for Decision

A non-resident of Australia is liable to pay tax on income derived directly or indirectly from all Australian sources during the income year - subsection 6-5(3) of the Income Tax Assessment Act 1997 (the ITAA 1997).

However, when 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 International Tax Agreements Act 1953 (the Agreements Act).

Under domestic tax laws visiting employee remuneration is generally taxable in the country where the services are performed. However, teaching and research remuneration of visiting professors and teachers is usually exempt from tax in the country being visited provided the visit does not exceed two years.

Therefore, to establish whether the income you derived from a three-month teaching engagement undertaken in Australia is exempt from tax in Australia we must look at the double tax agreement between Australia and the United States of America (United States).

Schedule 2 to the Agreements Act contains the double tax agreement between Australia and the United States, (the United States Convention). The United States Convention operates to avoid the double taxation of income received by Australian and United States residents.

There is no specific article dealing with professors and teachers in the US Convention. Therefore, your liability to tax on your Australian sourced income is considered under the general provisions for dependant personal services in the double tax agreement.

Article 15 of the United States Convention provides that salary, wages and other similar remuneration derived by a United States resident shall be taxable only in the United States unless the employment is exercised in Australia. Where the employment is exercised in Australia then the income may be taxed in Australia.

This means that as a resident of the United States the income you derive from employment in Australia, may be taxed by both the United States and Australia.

The conditions under which the income in question will be exempt from tax in Australia are set out in article 15(2). There are three conditions, all of which must be satisfied for the exemption to apply. Those conditions are:

1.

the recipient is present in Australia for a period or periods not exceeding in the aggregate 183 days in the income year ending 30 June;

2.

the remuneration is paid by or on behalf of an employer or company who is not a resident of Australia; and

3.

the remuneration is not deductible in determining the profits of an enterprise or permanent establishment that the employer has in Australia.

In your case, your circumstances satisfy point 1 above, as you were not in Australia for more than 183 days. However, your circumstances do not satisfy point 2, as your employer is a resident of Australia. Therefore, the remuneration you received for performing teaching and administrative duties for an Australian resident employer in Australia is not exempt from Australian income tax.

PAYG Withholding

Employers are required to withhold an amount from payments of salary or wages made to non-resident employees for work undertaken in Australia. The amount to be withheld is worked out under the withholding schedules. These schedules can be obtained from the ATO by phoning 13 2866.

Relief from double taxation

Subparagraph (1)(a) of Article 22 deals with the relief of double taxation and provides that a credit for any tax paid in Australia will be allowed against United States tax payable on income from Australian sources.

In summary, the income you derived from your employment activities in Australia will be subject to tax in Australia under section 6-5 of the ITAA 1997. The Australian tax paid can be claimed as a credit against any United States tax payable.

Year of income:  Year ending 30 June 2002

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

Keywords
Double tax agreements
Non resident individuals
United States
Academic staff
Individuals non business case reports

Business Line:  Small Business/Individual Taxpayers

Date of publication:  17 April 2002

ISSN: 1445-2782