ATO Interpretative Decision

ATO ID 2003/188 (Withdrawn)

Income Tax

• This ATO ID is withdrawn due to legislative changes to section 23 of the Income Tax Assessment Act 1936, but remains precedential up to the 2008-09 income year.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 income received by an Australian resident taxpayer from teaching in the Republic of Korea (Korea) assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The salary and wages income received by an Australian resident taxpayer from teaching in Korea is assessable under subsection 6-5(2) of the ITAA 1997 and is not exempt income under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

Facts

The taxpayer is an Australian resident for income tax purposes.

The taxpayer is employed as a teacher in a school in Korea for approximately 12 months.

The taxpayer receives salary and wages income from the school.

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.

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 ITAA 1936 which deals with overseas employment income.

Subsection 23AG(1) of the ITAA 1936 provides that where a resident taxpayer is engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived will be exempt from tax in Australia.

Subsection 23AG(7) of the ITAA 1936 defines 'foreign service' as service in a foreign country as the holder of an office or in the capacity of an employee, and 'foreign earnings' include salary, wages, commission, bonuses or allowances.

However, 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 exclusions listed therein.

Under paragraph 23AG(2)(b) of the ITAA 1936, where income is exempt in the foreign country as a result of the operation of a double tax agreement, that income is not exempt under subsection 23AG(1) of the ITAA 1936.

Therefore, 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 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).

Schedule 22 to the Agreements Act contains the double tax agreement between Australia and Korea (the Korean Convention). The Korean Convention operates to avoid the double taxation of income received by Australian and Korean residents.

Article 20 of the Korean Convention provides that remuneration derived by an Australian resident individual who, at the invitation of any university, college, school or other recognised educational institution, visits Korea for a period not exceeding two years solely for the purpose of teaching or research or both at such educational institution, will be taxable only in Australia.

As the salary and wages income received by the taxpayer is exempt from tax in Korea under Article 20 of the Korean Convention, the taxpayer is not entitled to an exemption from tax in Australia under subsection 23AG(1) of the ITAA 1936.

Therefore, the salary and wages income received by the taxpayer from teaching in Korea is assessable in Australia under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ending 30 June 2003 Year ending 30 June 2004

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

Keywords
Double tax agreements
Exempt income
Foreign income
Foreign salary & wages
International tax
Korea

Business Line:  Public Groups and International

Date of publication:  28 March 2003

ISSN: 1445-2782