ATO Interpretative Decision
ATO ID 2002/610 (Withdrawn)
Income Tax
Assessability of bonus payment - as a result of employment in IndiaFOI status: may be released
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This ATO ID is withdrawn as the issue is dealt with in ATO ID 2005/37 and ATO ID 2004/590.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 12 May 2006
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 a bonus payment the taxpayer received as a result of employment in India assessable in Australia under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. A bonus payment the taxpayer received as a result of employment in India is assessable in Australia under section 6-5 of the ITAA 1997.
Facts
The taxpayer is resident of Australia for taxation purposes.
They were previously a resident of India and during that time they worked for a subsidiary of an Australia company in India.
The taxpayer ceased employment with the subsidiary and moved to Australia where they commenced employment with the Australian company.
After commencing employment with the Australian company the taxpayer received a bonus payment from that company. The bonus payment related to the duties they performed in India. The bonus received did not include any payment in relation to termination of employment.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 provides that the 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.
Paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that the assessable income of a taxpayer includes any bonuses given in respect of any employment (subject to certain exclusions that are not relevant here). Taxation Ruling IT 2534 provides, at paragraph 4, that a bonus is taken to have been derived for income tax purposes at the time it is paid or otherwise made available to the employee. This is so even where the bonus may have been with regard to duties that were performed in a previous year of income.
Therefore the taxpayer is taken to have derived the bonus income when they received it. Accordingly the taxpayer received the bonus at a time when they were a resident of Australia for taxation purposes.
Employment income ordinarily has its source in the place where the services were performed (Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 7 AITR 76; (1957) 11ATD 288).
The taxpayer performed the employment duties that gave rise to the bonus payment while in India. The bonus payment is therefore considered to have a source in India.
In determining liability to Australian tax on foreign sourced income it is necessary to consider any applicable double tax agreement contained in the International Tax Agreement Act 1953 (the Agreements Act).
Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).
Schedule 35 to the Agreements Act contains the double tax agreement between Australia and India (the Indian Agreement). The Indian Agreement operates to avoid double taxation of income received by Australian and Indian residents.
Article 15 of the Indian Agreement deals with dependant personal services. Paragraph (1) of Article 15 of the Indian Agreement provides that employment income derived by a resident of Australia shall be taxable only in Australia unless the employment is exercised in India. If the employment is exercised in India then the income may also be taxed in India (subject to paragraph (2) of Article 15 of the Indian Agreement).
The taxpayer is therefore assessable under section 6-5 of the ITAA 1997 on the bonus payment received in respect of their employment in India.
Year of income: Year ended 30 June 2001
Legislative References:
Income Tax Assessment Act 1936
paragraph 26(e)
section 6-5
subsection 6-5(2) International Tax Agreements Act 1953
section 4
Schedule 35
Schedule 35, Article 15
Schedule 35, Article 15(1)
Schedule 35, Article 15(2)
Schedule 35, Article 24
Case References:
Federal Commissioner of Taxation v. French
(1957) 98 CLR 398
(1957) 7 AITR 76
(1957) 11ATD 288
Related Public Rulings (including Determinations)
Taxation Ruling IT 2534
Keywords
Foreign income
Double tax agreements
India
Employee bonuses
Resident/residency
ISSN: 1445-2782
| Date: | Version: | |
| 16 April 2002 | Original statement | |
| You are here → | 12 May 2006 | Archived |