ATO Interpretative Decision

ATO ID 2004/79

Income Tax

• This ATO ID has been amended to remove references in the Note part of the Reasons for Decision to repealed legislation dealing with foreign tax credit rules. With effect from 1 July 2008 the foreign tax credit will by replaced by a foreign tax offset.
  This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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 the income earned by an Australian resident taxpayer, while working in Kiribati, 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, while working in Kiribati, 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 does contract work in Kiribati as a freelance economist.

A fixed base was regularly available to the taxpayer while working in Kiribati.

The taxpayer earned in excess of AUD8,000 while working in Kiribati.

The taxpayer was in Kiribati in excess of 90 days in the year of income.

The taxpayer intends to return to Australia on completion of the project in Kiribati.

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.

Contract income is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining liability to Australian tax of foreign sourced income received by a resident, 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 Income Tax Assessment Act 1936 (ITAA 1936) and ITAA 1997 so that those Acts are read as one.

Schedule 34 to the Agreement Act contains the double tax agreement between Australia and the Republic of Kiribati (the Kiribati Agreement). The Kiribati Agreement operates to avoid double taxation of income received by Australian and Kiribati residents.

Article 14(1) of the Kiribati Agreement provides that income derived by an individual who is a resident of Australia in respect of professional services or independent activities of a similar character shall be taxable only in Australia unless:

(a)

A fixed base is regularly available to the individual in Kiribati for the purpose of performing the individual's activities. If such a fixed base is available, the income may be taxed in Kiribati but only so much of it as is attributable to activities exercised from that fixed base; or

(b)

the income is derived from a resident of Kiribati or a permanent establishment in Kiribati and exceeds an amount of AUD8,000 or its equivalent in any other currency in any one 12 month period. In that case so much of the income as is derived from that individual's activities in Kiribati may be taxed in Kiribati; or

(c)

that individual's stay in Kiribati exceeds an aggregate of 90 days in any year of income or tax year, as the case may be, of Kiribati. In that case so much of the income as is derived from that individual's activities in Kiribati may be taxed in Kiribati.

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

Income earned as a freelance economist in Kiribati is considered to be in respect of 'professional services'.

A fixed base was regularly available to the taxpayer while working in Kiribati. The taxpayer earned in excess of AUD8,000 while working in Kiribati. The taxpayer was in Kiribati in excess of 90 days in the year of income.

All conditions of Article 14(1) of the Kiribati Agreement have been satisfied. Accordingly the income may be taxed in Australia and Kiribati.

Article 23(1) of the Kiribati Agreement provides, subject to the provisions of the law in Australia, a credit for any tax paid in Kiribati will be allowed against Australian tax paid on income from Kiribati.

Accordingly, the income earned by an Australian resident taxpayer, while working in Kiribati, is assessable 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
Foreign income
Foreign tax credits
International tax
Kiribati
Treaties

Siebel/TDMS Reference Number:  3648999

Business Line:  Public Groups and International

Date of publication:  30 January 2004

ISSN: 1445-2782