ATO Interpretative Decision

ATO ID 2004/279 (Withdrawn)

Income Tax

• This ATO ID is withdrawn because it contains references to the tax treaty between Australia and the United Kingdom that was replaced with a new tax treaty which is effective from 17 December 2003. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions for income years up to, and including, the 2003-04 income year.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are salary and wages earned by an Australian resident sports person from performances in the United Kingdom (UK) 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 sports person from performances in the UK are not assessable under subsection 6-5(2) of the ITAA 1997 as they are exempt under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936).

Facts

The taxpayer is an Australian resident for taxation purposes.

The taxpayer is a professional sports person who participated in a tour of the UK.

The taxpayer was paid by an Australian employer.

The taxpayer was present in the UK in excess of 91 days.

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.

Income derived by a professional sports person is 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).

In determining liability to Australian tax on foreign source income, 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 the ITAA 1997 so that those acts are read as one.

Schedule 1 to the Agreements Act contains the double tax agreement between Australia and the United Kingdom of Great Britain and Northern Island (the UK Agreement). Schedule 1A to the Agreements Act contains the Protocol amending the UK Agreement (the UK Protocol). The UK Agreement and the UK Protocol operate to avoid the double taxation of income received by Australian and UK residents.

Article 13 of the UK Agreement provides that notwithstanding anything contained in Articles 11 and 12, income derived by public entertainers, such as theatre, motion picture, radio and television artists, and musicians, and by athletes, from their personal activities as such shall be deemed to have a source in, and may be taxed in, the territory in which these activities are exercised.

Professional sports persons are considered athletes under Article 13 of the UK Agreement. Therefore, the salary and wages earned by an Australian professional sports person who participated in a tour of the UK may be taxed in the UK and Australia under Article 13 of the UK Agreement.

The salary and wages received by the taxpayer as a professional sports person / athlete are exempt from tax under subsection 23AG(1) of the ITAA 1936 as the taxpayer has been engaged in foreign service in the UK for a continuous period of more than 91 days.

Accordingly, the salary and wages received by the taxpayer while present in the UK, will not form part of their assessable income 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(7)

Keywords
Double tax agreements
Exempt income
Foreign income
International Tax
United Kingdom

Business Line:  Public Groups and International

Date of publication:  26 March 2004

ISSN: 1445-2782