ATO Interpretative Decision

ATO ID 2003/1076 (Withdrawn)

Income Tax

• This ATO ID is withdrawn from the database because it contains references to the tax treaty between Australia and the United Kingdom that was replaced with a new tax treaty effective from 17 December 2003. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions for income years up to, and including, the 2003-04 income year.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the salary and wages income received by an Australian resident taxpayer, who is employed by an employer in the United Kingdom (UK) and who works remotely from Australia using the Internet, included in assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The salary and wages income received by an Australian resident taxpayer, who is employed by an employer in the UK and who works remotely from Australia using the Internet is included in assessable income under subsection 6-5(2) of the ITAA 1997.

Facts

The taxpayer is an Australian resident for income tax purposes and for the purposes of the double tax agreement between Australia and the UK contained in Schedule 1 to the International Tax Agreements Act 1953 (the Agreements Act).

The taxpayer is employed by a UK company.

The taxpayer performs the duties of their employment in Australia using the Internet through which the taxpayer accesses the company's databases and systems.

The results of the taxpayer's work are exploited in the UK.

The taxpayer receives salary and wages income from the UK employer.

Reasons for Decision

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining liability to tax on Australian sourced income received by the taxpayer, 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.

Schedule 1 to the Agreements Act contains the double tax agreement between Australia and the United Kingdom of Great Britain and Northern Ireland (the UK Agreement). Schedule 1A to the Agreements Act contains the Protocol amending the UK Agreement (the UK Protocol). The UK Agreement and the UK Protocol operate to avoid the double taxation of income received by Australian and UK residents.

Article 12(1) of the UK Agreement provides that income derived by a resident of Australia in respect of employment is subject to tax only in Australia unless the employment is exercised in the UK, in which case it may also be taxed in the UK.

As the taxpayer is a resident of Australia, the employment income received by the taxpayer is taxable in Australia under Article 12(1) of the UK Agreement.

Article 12(1) of the UK Agreement provides that the UK may also tax the employment income received by the taxpayer if the taxpayer's employment is exercised in the UK.

Paragraph 1 of the Commentary on Article 15 concerning the taxation of income from employment contained in the OECD Model Tax Convention on Income and Capital states that employment is exercised in the place where the employee is physically present when performing the activities for which the employment income is paid. One consequence of this would be that a resident of one country who derives employment income, from sources in the other country could not be taxed in that other country in respect of that remuneration merely because the results of this work were exploited in that other country.

Therefore, as the taxpayer is physically present in Australia when performing the duties of their employment, the taxpayer's employment is exercised in Australia even though the results of the taxpayer's work are exploited in the UK.

Accordingly, Article 12(1) of the UK Agreement provides that the employment income received by the taxpayer is taxable only in Australia.

As the taxpayer is a resident of Australia for income tax purposes, the employment income received by the taxpayer is included in assessable income under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   subsection 6-5(2)

Keywords
Double tax agreements
International tax
Salary & wages income
United Kingdom

Business Line:  Public Groups and International

Date of publication:  28 November 2003

ISSN: 1445-2782