ATO Interpretative Decision

ATO ID 2003/856 (Withdrawn)

Income Tax

• This ATO ID is withdrawn due to legislative changes to section 23AG of the Income Tax Assessment Act 1936 which took effect from 1 July 2009.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 2008/2009 income year.
  This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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 document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are the salary and wages earned by an Australian resident taxpayer, while employed in the Republic of Ireland (Ireland) as a doctor in a hospital managed by an Irish government authority, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. The salary and wages earned by an Australian resident taxpayer, while employed in Ireland as a doctor in a hospital managed by an Irish government authority, are not assessable under subsection 6-5(2) of the ITAA 1997 as they are exempt from tax under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

Facts

The taxpayer is a resident of Australia for income tax purposes.

The taxpayer is employed as a doctor in a hospital in Ireland, managed by an Irish government authority, for a continuous period of 92 days.

The taxpayer receives salary and wages income.

The taxpayer pays Irish tax on the salary and wages.

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.

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 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. 'Foreign service' includes service in a foreign country in the capacity as an employee and 'foreign earnings' include income consisting of salary and wages (subsection 23AG(7) of the ITAA 1936).

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 county 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. In the event of inconsistent provisions, the Agreements Act overrides the ITAA 1936 and ITAA 1997 (except in some limited situations).

Schedule 20 to the Agreements Act contains the double tax agreement between Australia and Ireland (the Irish Agreement). The Irish Agreement operates to avoid the double taxation of income received by Australian and Irish residents.

Article 16(1) of the Irish Agreement provides that salary and wages derived by an individual who is a resident of Australia in respect of an employment will be taxable only in Australia unless the employment is exercised in Ireland. If the employment is exercised in Ireland, the remuneration may be taxed in Ireland.

However, Article 16(2) of the Irish Agreement provides that remuneration derived by a Australian resident individual taxpayer in respect of an employment exercised in Ireland will be taxable only in Australia if:

•

the recipient is present in Ireland for a period or periods not exceeding in the aggregate 183 days in the year of income or year of assessment, as the case may be, of Ireland; and

•

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

•

the remuneration is not deductible in determining the taxable profits of a permanent establishment or a fixed base which the employer has in Ireland.

Article 16(2) of the Irish Agreement does not apply as the salary and wages are paid by an Irish resident employer.

Paragraph 23AG(2)(b) of the ITAA 1936 will not apply as the salary and wages received by the taxpayer are not exempt from tax in Ireland.

As the taxpayer is employed in Ireland for a continuous period of not less than 91 days and the salary and wages are not exempt from tax in Ireland under the Irish Agreement, the income received from Ireland will be exempt from tax under subsection 23AG(1) of the ITAA 1936.

Accordingly, the salary and wages received by the resident taxpayer while employed in Ireland will not be assessable under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ended 30 June 2003

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

Keywords
Double tax agreements
Exempt income
Foreign source income
Ireland

Business Line:  Public Groups and International

Date of publication:  26 September 2003

ISSN: 1445-2782