ATO Interpretative Decision
ATO ID 2004/762
Income Tax
Assessability of remuneration received by a Chinese citizen providing professional services in AustraliaFOI status: may be released
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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 the remuneration received from an Australian university by a Chinese citizen, who is an Australian resident for income tax purposes and for the purposes of Schedule 28 to the International Tax Agreements Act 1953 (the Agreements Act), for the provision of independent scientific and educational activities in Australia assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The remuneration received from an Australian university by a Chinese citizen, who is an Australian resident for income tax purposes and for the purposes of Schedule 28 to the Agreements Act, for the provision of independent scientific and educational activities in Australia is assessable under subsection 6-5(2) of the ITAA 1997.
Facts
The taxpayer is a Chinese citizen who is a resident of Australia for income tax purposes and for the purposes of Schedule 28 to the Agreements Act.
The taxpayer has been contracted by an Australian university to provide scientific and educational services to the university.
The taxpayer carries out their activities in Australia at the premises of the Australian university.
The taxpayer receives remuneration from the Australian university in respect of the services provided.
The taxpayer is not an employee of the Australian university.
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.
Remuneration for 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 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 28 to the Agreements Act contains the double tax agreement between Australia and the People's Republic of China (the Chinese Agreement). The Chinese Agreement operates to avoid the double taxation of income received by Australian and Chinese residents.
Article 20 of the Chinese Agreement provides that where a professor or teacher who is a resident of China visits Australia for a period not exceeding two years for the purpose of teaching or carrying out advanced study or research at a university, college, school or other educational institution, any remuneration the person receives for such teaching, advanced study or research shall be exempt from tax in Australia to the extent to which that remuneration will be subject to tax in China.
As the taxpayer is a resident of Australia for the purposes of the Chinese Agreement, Article 20 does not apply.
Article 14(1) of the Chinese 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 except in one of the following circumstances, when the income may also be taxed in China:
- (a)
- if the individual has a fixed base regularly available to him or her in China for the purpose of performing his or her activities: or
- (b)
- if the individual's stay in China is for a period exceeding in the aggregate 183 days in any consecutive period of 12 months.
Article 14(2) of the Chinese Agreement defines the term 'professional services' to include services performed in the exercise of independent scientific, educational or teaching activities.
The taxpayer is considered to be performing professional services. As the taxpayer carries out their activities in Australia, the remuneration received by the taxpayer in respect of the provision of those services will be taxable only in Australia under Article 14(1) of the Chinese Agreement.
Accordingly, the remuneration received by the taxpayer for the provision of independent scientific and educational activities in Australia is assessable under subsection 6-5(2) of the ITAA 1997.
Date of decision: 9 September 2004Year of income: Year ended 30 June 2004 Year ended 30 June 2005
Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(2)
section 4
Schedule 28
Schedule 28, Article 14
Schedule 28, Article 14(1)
Schedule 28, Article 14(2)
Schedule 28, Article 20
Keywords
China
Double tax agreements
International tax
Personal services income
Professors & lecturers
ISSN: 1445-2782