ATO Interpretative Decision
ATO ID 2007/103
Income Tax
Assessability of Australian sourced salary and wages received by a resident of SwitzerlandFOI 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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 salary and wages income from employment performed in Australia by a resident of Switzerland over three income years assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The salary and wages income from employment performed in Australia by a resident of Switzerland over three income years is assessable under subsection 6-5(3) of the ITAA 1997.
Facts
The taxpayer is a resident of Switzerland and is not an Australian resident for income tax purposes.
The taxpayer is employed by an Australian company. The taxpayer's salary and wages will be paid by the Australian company and will be sourced in Australia.
The taxpayer will be working in Australia over a period spanning three income years. The taxpayer will perform services in Australia for more than 183 days in one income year.
The taxpayer will perform services in Australia for less than 183 days in each of the other two income years.
Reasons for Decision
Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year and other ordinary income that a provision includes as assessable income on some basis other than having an Australian source.
Salary and wages are ordinary income under subsection 6-5(3) of the ITAA 1997. The income in the present case is sourced from Australia and subsection 6-5(3) will apply.
In determining liability to tax on Australian sourced income, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).
The taxpayer is a resident of Switzerland, a country with which Australia has entered into a tax treaty. Therefore, the tax treaty between Australia and Switzerland (the Swiss Agreement) and the protocol to that agreement contained in Schedule 15 of the Agreements Act must be considered in determining whether the salary and wages paid to the taxpayer is taxable in Australia.
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. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).
Article 15 of the Swiss Agreement deals with dependent personal services. The Article provides that salary, wages and other similar remuneration derived by a Swiss resident shall be taxable only in Switzerland unless the employment is exercised in Australia. If the employment is exercised in Australia then the income may also be taxed in Australia.
Article 15(2) of the Swiss Agreement provides that the income will be exempt from tax in Australia if:
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- the taxpayer is present in Australia for a period or periods not exceeding in the aggregate 183 days in the Australian year of income, and
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- the remuneration is paid by or on behalf of an employer who is a resident of Switzerland, and
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- the remuneration is not deductible in determining the profits of a permanent establishment or a fixed base which the employer has in Australia.
In the present case, the remuneration is paid to the taxpayer by an employer who is a resident of Australia and so the exemption under paragraph (b) will not apply. In addition, the taxpayer is present in Australia for more than 183 days for one of the income years and so the exemption under paragraph (a) will not apply as well in that year.
As a result, Article 15(2) of the Swiss Agreement does not apply and Article 15(1) of the Swiss Agreement gives Australia the right to tax the salary and wages earned by the taxpayer in all three income years. Accordingly, the salary and wages will be assessed under subsection 6-5(3) of the ITAA 1997.
Date of decision: 27 February 2007Year of income: Year ended 30 June 2007 Year ending 30 June 2008 Year ending 30 June 2009
Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(3)
section 4
section 15
Schedule 15, Article 15
Schedule 15, Article 15(1)
Schedule 15, Article 15(2)
Keywords
Double tax agreements
Double tax relief
International tax
Residence in Australia
Salary & wages income
Switzerland
ISSN: 1445-2782