ATO Interpretative Decision

ATO ID 2004/299

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• This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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

Is income earned by an Australian resident taxpayer, who is contracted by an entity in Fiji to provide professional services to the entity and who works remotely from Australia, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The income earned by an Australian resident taxpayer, who is contracted by an entity in Fiji to provide professional services to the entity and who works remotely from Australia, is assessable under subsection 6-5(2) of the ITAA 1997.

Facts

The taxpayer is a resident of Australia for income tax purposes.

The taxpayer has a contract with an entity in Fiji to provide professional services to the entity.

The taxpayer will provide their services wholly in Australia.

The taxpayer is not an employee of the entity in Fiji.

The taxpayer will receive a fee for their professional services from the entity in Fiji.

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.

Income earned in respect of professional services is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining liability to tax on Australian sourced income paid to a taxpayer by an entity of a foreign country, 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).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one.

Schedule 32 to the Agreements Act contains the double tax agreement between Australia and Fiji (the Fijian Agreement). The Fijian Agreement operates to avoid the double taxation of income received by Australian and Fijian residents.

Article 14(1) of the Fijian Agreement provides that income derived by a resident of Australia in respect of professional services or other independent activities of a similar character shall be taxable only in Australia. However, if such an individual:

(a)

has a fixed base regularly available to the individual in Fiji for the purpose of performing the individual's activities

(b)

in a year of income, stays in Fiji for a period or periods aggregating 183 days or more for the purpose of performing the individual's activities, or

(c)

in a year of income, derives gross remuneration in respect of the individual's activities in Fiji, that is paid by a resident of Fiji or is deductible in determining taxable profits of a permanent establishment or a fixed base situated in Fiji and that exceeds eight thousand dollars or its equivalent in Fijian dollars,

so much of that income derived by the individual may be taxed in Fiji.

Article 14(3) of the Fijian Agreement provides that 'professional services' includes services performed in the exercise of independent scientific, literary, artistic, educational or teaching activities, as well as in the exercise of independent activities of physicians, engineers, architects, dentists and accountants.

Although the results of the taxpayer's work are exploited in Fiji, the taxpayer provides their professional services wholly from Australia and does not perform any activities in Fiji. Accordingly, none of the paragraphs in Article 14(1) of the Fijian Agreement apply.

Therefore, the income received by the taxpayer is taxable only in Australia under Article 14(1) of the Fijian Agreement.

As the taxpayer is a resident of Australia for income tax purposes, the income received by the taxpayer from the provision of professional services to a Fijian entity is assessable under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ended 30 June 2004 Year ended 30 June 2005

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

Keywords
Double tax agreements
Fiji
Income
International tax

Siebel/TDMS Reference Number:  3917245

Business Line:  Public Groups and International

Date of publication:  2 April 2004

ISSN: 1445-2782