ATO Interpretative Decision

ATO ID 2003/708

Income Tax

• This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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.

Issue

Are the salary and wages received by a taxpayer, a Canadian resident employed in Australia, from a Canadian employer assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. Even though the salary and wages received by the taxpayer, a Canadian resident employed in Australia, from a Canadian employer would be assessable under subsection 6-5(3) of the ITAA 1997, Article 15 of Schedule 3 to the International Tax Agreements Act 1953 (the Agreements Act) applies and the salary and wages are not taxable in Australia.

Facts

The taxpayer is a resident of Canada and a non-resident of Australia for income tax purposes.

The taxpayer receives salary and wage income from their Canadian employer who does not maintain a permanent establishment or fixed base in Australia.

The number of days spent by the taxpayer in Australia during the 2001 income year was less than 183 days.

Reasons for Decision

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident includes ordinary income derived directly or indirectly from all Australian sources during the income year. Salary and wages are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

The source of income derived from employment is generally the place where the duties or services are performed (Federal Commissioner of Taxation v. French (1957) 98 CLR; (1957) 11 ATD 288; (1957) 7 AITR 76). Therefore, the salary and wages received by the taxpayer from employment in Australia has an Australian source.

In determining liability to tax on Australian sourced income derived by the non-resident 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. In the event of inconsistent provisions, the Agreements Act overrides the ITAA 1997 (except in some limited situations).

Schedule 3 to the Agreements Act contains the convention between Australia and Canada (the Canadian Convention). Schedule 3A to the Agreements Act contains the protocol amending the Canadian Convention (the Canadian Protocol). The Canadian Convention and the Canadian Protocol operate to avoid the double taxation of income received by Australian and Canadian residents.

Article 15(1) of the Canadian Convention provides that salary and wages derived by a Canadian resident for employment exercised in Australia may be taxed in Australia.

However, former Article 15(2) of the Canadian Convention provides that remuneration derived by an individual, who is a resident of Canada, in respect of employment exercised in Australia will be taxable only in Canada if the individual is present in Australia for a period or periods not exceeding in the aggregate 183 days in the year of income and either:

(a)

the remuneration does not exceed the greater of

(i)

three thousand Canadian dollars; and

(ii)

two thousand six hundred Australian dollars; or

(b)

the remuneration is paid by a non-resident without a permanent establishment in Australia.

The taxpayer was present in Australia for less than 183 days and the salary and wages were paid by a Canadian employer who does not have a permanent establishment or fixed base in Australia. Consequently, as the taxpayer is a resident of Canada, Article 15 of the Canadian Convention applies and the salary and wages are not taxable in Australia.

Accordingly, the salary and wages received by the Canadian resident taxpayer in Australia are not assessable under subsection 6-5(3) of the ITAA 1997.

Note: the monetary requirements contained in former Article 15(2)(a) of the Canadian Convention have been removed by Article 12 of the Canadian Protocol with effect from 12 December 2002.

Year of income:  Year ended 30 June 2001

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

Case References:
Federal Commissioner of Taxation v. French
   (1957) 98 CLR 398
   (1957) 11 ATD 288
   (1957) 7 AITR 76

Keywords
Canada
Double tax agreements
Treaties
International Tax

Siebel/TDMS Reference Number:  3262441

Business Line:  Public Groups and International

Date of publication:  8 August 2003

ISSN: 1445-2782