ATO Interpretative Decision

ATO ID 2003/888 (Withdrawn)

Income Tax

• ATO ID 2003/888 is withdrawn from the database because, following legislative changes which became effective on 14 September 2006, it is no longer current for years of income happening on or after 30 June 2006. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions dealing with the application of paragraph 23(r) of the ITAA 1936 occurring before that date. An ATO ID dealing with the replacement legislation will issue shortly.
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Issue

Is the payment for training services derived by an entity resident in the United States of America (US) from an Australian state government department exempt from tax under paragraph 23(r) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

No. The payment for training services derived by an entity resident in the US from an Australian state government department is not exempt income under paragraph 23(r) of the ITAA 1936.

Facts

The taxpayer is a resident of the US and a non-resident of Australia for income tax purposes.

The taxpayer has no permanent establishment in Australia.

The taxpayer provides specialist training at various locations in Australia under the terms of two agreements executed in Australia with a state government department.

The taxpayer receives fees for the provision of specialist training.

Reasons for Decision

Paragraph 23(r) of the ITAA 1936 provides that income derived by a non-resident taxpayer from sources wholly out of Australia, except income included as assessable under a specific provision of the Act other than having an Australian source, will be exempt from income tax.

Generally, Australian courts have held that when the question of source is in issue, the weighting of the relative importance of the various factors are relevant (Nathan v. Federal Commissioner of Taxation (1918) 25 CLR 183 at 189-190 and Federal Commissioner of Taxation v. United Aircraft Corporation (1943) 68 CLR 525; (1943) 7 ATD 318; (1943) 2 AITR 458). The courts also confirmed that it is appropriate to have regard to some of the following factors in determining the source of income:

•

the place of making the agreement

•

the place of payment of fees arising from the agreement; and

•

the place of performance of services under the terms of the agreement.

The payment received by the taxpayer for the provision of training services is considered to be Australian sourced income taking into account the relative importance of factors such as the location for the making of the agreements, the place of provision of services and the payments for the services.

As the income received by the non-resident taxpayer from the Australian state government department is not from sources wholly out of Australia, it is not exempt from income tax under paragraph 23(r) of the ITAA 1936.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   section 23(r)

Case References:
Nathan v. Federal Commissioner of Taxation
   (1918) 25 CLR 183

Related ATO Interpretative Decisions
ATO ID 2003/886
ATO ID 2003/887
ATO ID 2003/889

Keywords
Double tax agreements
Exempt income
Non resident
Staff training expenses
United States

Business Line:  Public Groups and International

Date of publication:  3 October 2003

ISSN: 1445-2782