ATO Interpretative Decision

ATO ID 2005/167 (Withdrawn)

Income tax

• This ATO ID is withdrawn from the database due to legislative changes to section 23AG of the Income Tax Assessment Act 1936 which took effect from 1 July 2009. Despite its withdrawal, this ATO ID continues to be a precedential view in respect of decisions for income years up to, and including, the 2008-09 income year.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are the salary and wages received by an Australian resident taxpayer, while working on an oil exploration vessel in the territorial waters of Malta, assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The salary and wages received by an Australian resident taxpayer, while working on an oil exploration vessel in the territorial waters of Malta, are assessable income under subsection 6-5(2) of the ITAA 1997.

Facts

The taxpayer is an Australian resident for income tax purposes.

The taxpayer's employer is not a resident of Australia or Malta.

The taxpayer performs the duties of their employment on an oil exploration vessel that operates in various locations including the territorial waters of Malta.

The taxpayer worked in the territorial waters of Malta for less than 183 days.

The taxpayer has been engaged in service in a number of foreign countries for a continuous period of not less than 91 days.

The remuneration paid to the taxpayer is not deductible in determining taxable profits of a permanent establishment in Malta.

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 during the income year.

Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income. Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) which deals with overseas employment income.

Subsection 23AG(1) of the ITAA 1936 provides that where a resident is engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that service will be exempt. 'Foreign service' includes service in a foreign country in the capacity as an employee and 'foreign earnings' includes salary and wages income (subsection 23AG(7) of the ITAA 1936).

Subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG(1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the reasons listed therein.

One of the reasons listed is where the income is exempt in the foreign country because of a double tax agreement (paragraph 23AG(2)(b) of the ITAA 1936).

Therefore, in determining the liability to Australian tax on foreign sourced income received by a resident taxpayer 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 1936 and the ITAA 1997 so that those Acts are read as one.

Schedule 24 to the Agreements Act contains the double tax agreement between Australia and Malta (the Maltese Agreement).

Article 15(1) of the Maltese Agreement provides that remuneration derived by an individual who is a resident of Australia in respect of an employment shall be taxable only in Australia unless the employment is exercised in Malta. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in Malta.

However, Article 15(2) of the Maltese Agreement provides that remuneration derived by a resident of Australia in respect of an employment exercised in Malta shall be taxable only in Australia if:

(a)

the taxpayer is present in Malta for a period or periods not exceeding in the aggregate 183 days in the Maltese year of income; and

(b)

the remuneration is paid by, or on behalf of, an employer who is not a Maltese resident; and

(c)

the remuneration is not deductible in determining profits of a permanent establishment which the employer has in Malta; and

(d)

the remuneration is, or upon application of this Article will be, subject to tax in Australia.

As all requirements of Article 15(2) of the Maltese Agreement are satisfied, the income received by the taxpayer from employment on an oil exploration vessel operated in the territorial waters of Malta is taxable only in Australia.

As the income is exempt from tax in Malta by the operation of a double tax agreement, the exemption under subsection 23AG(1) of the ITAA 1936 will not apply.

Therefore, the salary and wages received by the taxpayer from employment in Malta are assessable income under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1936
   section 23AG
   subsection 23AG(1)
   subsection 23AG(2)
   paragraph 23AG(2)(a)
   paragraph 23AG(2)(b)
   subsection 23AG(6)
   paragraph 23AG(6)(a)
   subsection 23AG(7)

Related Public Rulings (including Determinations)
Taxation Ruling IT 2441
Taxation Ruling IT 2015

Related ATO Interpretative Decisions
ATO ID 2005/168

Keywords
Double tax agreements
Exempt income
Foreign income
Foreign salary & wages
International law
Malta
Treaties

Business Line:  Public Groups and International

Date of publication:  17 June 2005

ISSN: 1445-2782