ATO Interpretative Decision
ATO ID 2005/144 (Withdrawn)
Income tax
Assessable income: personal services income attributed to a non-resident under Part 2-42 of the ITAA 1997 - no double tax agreement appliesFOI status: may be released
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This ATO ID is withdrawn as it does not accurately reflect the ATO view. The current ATO position on this issue is contained in ATO ID 2010/214.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 26 November 2010
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Where subsection 86-15(1) of the Income Tax Assessment Act 1997 (ITAA 1997) operates in relation to a taxpayer's personal services income ('the subsection 86-15(1) amount') and:
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- the subsection 86-15(1) amount has a foreign source; and
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- the taxpayer is a resident of a country that does not have a double tax agreement with Australia;
does paragraph 6-10(5)(b) of the ITAA 1997 include the subsection 86-15(1) amount in the taxpayer's assessable income?
Decision
Yes. Where subsection 86-15(1) of the ITAA 1997 operates in relation to a taxpayer's personal services income and:
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- the subsection 86-15(1) amount has a foreign source; and
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- the taxpayer is a resident of a country that does not have a double tax agreement with Australia;
paragraph 6-10(5)(b) of the ITAA 1997 does include the subsection 86-15(1) amount in the taxpayer's assessable income.
Facts
The taxpayer is an individual who for taxation purposes, is neither a resident of Australia nor a country with which Australia has a Double Tax Agreement.
In the income year, the ordinary income of a private company includes the taxpayer's personal services income within the meaning of subsection 84-5(1) of the ITAA 1997.
The private company is not conducting a personal services business within the meaning of Division 87 of the ITAA 1997 and subsection 86-15(1) of Division 86 of Part 2-42 of the ITAA 1997 includes an amount in the taxpayer's assessable income. That amount does not have an Australian source for the purposes of Division 6 of Part 1-3 of the ITAA 1997.
Reasons for Decision
Division 6 of Part 1-3 of the ITAA 1997 deals with the core rules regarding ordinary income and statutory income included in assessable income.
Subsection 6-10(5) of the ITAA 1997 provides:
If you are not an Australian resident, your assessable income includes:
Subsection 6-10(2) of the ITAA 1997 provides that statutory income are amounts which are not ordinary income, but are included in assessable income by provisions of the Income Tax Assessment Act 1936 (ITAA 1936) or the ITAA 1997 about assessable income.
Section 10-5 of the ITAA 1997 provides a list of the statutory income provisions. That list includes section 86-15 of Division 86 of Part 2-42 of the ITAA 1997.
Subsection 86-15(1) of the ITAA 1997 provides that:
Your assessable income includes an amount of ordinary income or statutory income of a personal services entity that is your personal services income.
Under subsection 86-15(2) of the ITAA 1997, a personal services entity is a company, partnership or trust whose ordinary income or statutory income includes the personal services income of one or more individuals.
Subsection 86-15(1) of the ITAA 1997 will not operate where the personal services entity:
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- derives the personal services income from conducting a personal services business (subsection 86-15(3) of the ITAA 1997);
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- pays the personal services income promptly to the taxpayer as salary or wages (subsection 86-15(4) of the ITAA 1997); or
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- is not assessable on the personal services income under other provisions in the ITAA 1936 or the ITAA 1997 (subsection 86-15(5) of the ITAA 1997).
Therefore, a subsection 86-15(1) amount is included in assessable income of an individual on a basis other than having an Australian source for the purposes of paragraph 6-10(5)(b) of the ITAA 1997.
In the circumstances here, the subsection 86-15(1) amount is included in assessable income of the taxpayer under paragraph 6-10(5)(b) of the ITAA 1997 because it is statutory income of a non-resident taxpayer that is not sourced in Australia and is included in the taxpayer's assessable income on a basis other than having an Australian source.
As Australia has not entered into a double tax agreement with the country of which the taxpayer is a resident, the issue of whether an amount is included in assessable income is determined solely on the basis of Australian domestic law.
Date of decision: 12 May 2005Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
Division 6
subsection 6-10(2)
subsection 6-10(5)
paragraph 6-10(5)(a)
paragraph 6-10(5)(b)
section 10-5
Division 86
section 86-15
subsection 86-15(1)
subsection 86-15(2)
subsection 86-15(3)
subsection 86-15(4)
subsection 86-15(5)
Related Public Rulings (including Determinations)
Taxation Ruling TR 2001/7
Taxation Ruling TR 2001/8
Taxation Ruling TR 2003/6
Keywords
Non resident entities
PSI alienation of personal services income
ISSN: 1445-2782
| Date: | Version: | |
| 12 May 2005 | Original statement | |
| You are here → | 26 November 2010 | Archived |