ATO Interpretative Decision

ATO ID 2006/190 (Withdrawn)

Income Tax

• This ATO ID is withdrawn from the database due to aspects of the Facts and Reasons for Decision in the ATO ID that are unclear and legislative changes to section 23AG of the Income Tax Assessment Act 1936 which took effect from 1 July 2009.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the income received by an Australian resident taxpayer from independent personal services for more than 91 days and less than 183 days in New Zealand assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The independent personal services income received by an Australian resident taxpayer in New Zealand is assessable under subsection 6-5(2) of the ITAA 1997.

Facts

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

The taxpayer is contracted by a company that is a resident of New Zealand.

The taxpayer is an independent personal services contractor.

The entity which engages the taxpayer as a contractor does not have a fixed base in New Zealand that is made regularly available to the taxpayer.

The taxpayer is present in New Zealand for more than 91 days and less than 183 days in the New Zealand tax year.

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 Income Tax Assessment Act 1936 (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 sourced income received by a resident, 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 (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. In the event of inconsistent provisions, the Agreements Act overrides the ITAA 1936 and ITAA 1997 (except in some limited situations).

Schedule 4 to the Agreements Act contains the double tax agreement between Australia and New Zealand (the NZ Agreement). The NZ Agreement operates to avoid the double taxation of income received by Australian and New Zealand residents.

Article 14(1) of the NZ Agreement provides that income derived by a taxpayer who is a resident of Australia in respect of professional services or other independent activities shall be taxable only in Australia unless such services are performed in New Zealand and:

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the taxpayer is present in New Zealand for a period or periods exceeding in the aggregate 183 days in any 12 month period commencing or ending in the year of income concerned; or

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the fixed base is regularly available to the taxpayer in New Zealand for the purposes of performing the taxpayer's activities.

Article 14(1) of the NZ Agreement will not apply as the taxpayer is present in New Zealand for a period less than 183 days. The fixed base is not regularly available to the taxpayer in New Zealand for the purposes of performing the taxpayer's activities.

The independent personal services income received by the taxpayer is not exempt from tax under subsection 23AG(1) of the ITAA 1936 as the taxpayer has not been engaged in foreign service for a continuous period of not less than 91 days.

Accordingly, the independent personal services income earned by the taxpayer while present in New Zealand will form part of their assessable income under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ended 30 June 2005

Legislative References:
Income Tax Assessment Act 1997
   subsection 6-5(2)
   subsection 6-15(2)
   section 11-15

Keywords
Personal services income
Double tax agreements
Foreign income
New Zealand

Business Line:  Public Groups and International

Date of publication:  4 August 2006

ISSN: 1445-2782