ATO Interpretative Decision

ATO ID 2001/68

International tax

• This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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

Whether the income earned by the individual, a Canadian citizen working in Australia for twelve months, is subject to tax in Australia.

Decision

Yes, the income earned by the Canadian citizen from working in Australia for twelve months is subject to tax in Australia.

Facts

The individual, a Canadian citizen, is employed and paid by a foreign placement agency. The agency arranges for the taxpayer to be placed in an Australian organisation for twelve months to perform medical work. Under this arrangement, the taxpayer is still considered to be an employee of the placement agency for the duration of the placement.

The taxpayer is also considered to be a resident of Canada for tax purposes.

Reasons For Decision

Generally speaking, Australia has jurisdiction to tax individuals where they are either a resident of Australia for tax purposes, or where the relevant income has an Australian source.

To determine whether the taxpayer is a resident of Australia for tax purposes, it is necessary to consider whether the individual resides in Australia according to the ordinary meaning of the word 'resides': subsection 6(1) of the Income Tax Assessment Act 1936; Taxation Ruling TR 98/17. Although the length of time spent in Australia is not necessarily determinative of residency, in this case the taxpayer has been in Australia for a considerable period. Furthermore, the taxpayer has employment ties and living arrangements that indicate that the taxpayer is a resident of Australia for tax purposes.

The source of a taxpayer's income is the place where the services are performed: French v. FC of T (1957) 98 CLR 398. In this case, the income has an Australian source.

As the taxpayer may be regarded as an Australian resident for tax purposes, the taxpayer is subject to tax on the ordinary income that the taxpayer derives from all sources during the income year: subsection 6-5(2) of the Income Tax Assessment Act 1997. Under these circumstances, if the taxpayer was not a resident of Canada, then Australia would be the sole taxing point of this income.

However, in this case, the taxpayer is also a resident of Canada for tax purposes and is likely to be subject to tax on this same income under Canada's tax laws. In order to avoid such double taxation of income, Australia has entered into bilateral tax agreements with many countries. Consequently, it is necessary to consider the operation of the Double Tax Agreement (DTA) between Australia and Canada, as contained in Schedule 3 (International Tax Agreements Act 1953 (ITIA)).

For the purposes of establishing taxing rights, Article 4 (DTA) requires that the taxpayer be deemed a resident for DTA purposes of only one of the countries. The relevant test, as set out in Article 4, would indicate that the taxpayer in this case would be a resident of Canada for DTA purposes.

As the taxpayer is an employee, Article 15 (DTA), which deals with dependent personal services, is relevant. Article 15(1) (DTA) states that:

'... salaries, wages or similar remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State.'

In this case, the taxpayer is only a resident of Canada for DTA purposes, and therefore, shall be subject to tax in Canada. However, the taxpayer's employment is exercised in Australia, which means that the taxpayer may also be subject to tax in Australia. In effect, the DTA operates to allow Australia the first taxing right. Then, under Article 23 (DTA), the taxpayer may, generally speaking, deduct the tax paid in Australia from any Canadian tax payable in respect of that income.

Legislative References:
International Tax Agreements Act 1953
   Schedule 3

Case References:
French v. FC of T
   (1957) 98 CLR 398

Related Public Rulings (including Determinations)
TR 98/17

Keywords
International tax
Double tax agreements
Residence in Australia
Residence of individuals
Canada
Resident/residency

Siebel/TDMS Reference Number:  HOB17577

Business Line:  Small Business/Individual Taxpayers

Date of publication:  4 June 2001

ISSN: 1445-2782