Edited version of private ruling

Authorisation Number: 1011560185329

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Ruling

Subject: Assessability of income

Question

Are the payments you earn assessable in Australia?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

You are a non-resident of Australia for tax purposes.

You live in a foreign country.

You holiday in Australia on a regular basis or pass through Australia in the course of your profession.

You have acted in the area of your professional expertise. You charged a fee for this.

Your obligations are to a government agency.

You will be paid by the agency.

To date you have done one job for them but have not yet been paid.

You believe that you are a contractor.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Subsection 6-5(3)

International Tax agreements Act 1953 Article X Schedule

International Tax agreements Act 1953 Article Y Schedule

International Tax agreements Act 1953 Article Z Schedule

Reasons for decision

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a non-resident of Australia includes ordinary income derived in Australia during the income year.

In your case, income derived in Australia would include payments received from your work in Australia.

In determining liability to Australian tax on Australian sourced income received by a non-resident it is necessary to consider not only the domestic income tax laws but also any applicable tax agreement contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with both the Income Tax Assessment Act 1936 and the ITAA 1997 so that those Acts are read as one.

The double tax agreement between Australia and a foreign country (the Agreement) is located in a Schedule of the Agreements Act. The Agreement operates to avoid the double taxation of income received by Australian and residents of a foreign country.

Article X - Income from employment

Article X of the Agreement deals with salaries, wages and other similar remuneration earned from employment.

You have stated that you believe you are a contractor. Contractors are not employees and income from contracting is not salaries, wages or other similar remuneration earned from employment. Therefore Article X of the Agreement does not apply to your situation.

Article Y - Government service

Article Y of the Agreement concerns salaries, wages and other similar remuneration paid by a Contracting State (Australia) or a political or local authority of that State to an individual in respect of services rendered in the discharge of governmental functions.

Taxation Ruling TR 2005/8 clarifies the meaning of terms relating to government service in Australia's tax treaties, including the Agreement.

Paragraph 15 of TR 2005/8 states that the term 'salaries, wages and other similar remuneration' refer to amounts paid by a government to employees or office holders, and the term 'services rendered in discharge of governmental functions' is a reference to services rendered by the employee or office holder in completing or performing any functions undertaken by a government.

In your case you believe you are a contractor. You are paid by a government agency. Although the government agency may be considered a political or local authority of Australia, you are not considered to be an employee. Further, it is considered your work was not services rendered in the discharge of governmental functions as this work was not work which normally would be completed or performed by a government.

Therefore the payments you receive are not as an employee and are not received for government service and Article Y of the Agreement does not apply to your situation.

Article Z - Other income

Article Z of the Agreement covers income which is not covered by any other article of the Agreement. A paragraph of Article Z of the Agreement states that items of income beneficially owned by a resident of a foreign country, wherever arising, not dealt with in the foregoing Articles shall be taxable only in the foreign country.

In your case, other possible articles of the Agreement have been considered and found not to apply (Articles X and Y). Accordingly, your income is covered by a paragraph of Article Z of the Agreement.

Therefore, income you earn in Australia in the area of your professional expertise is assessable in the foreign country.

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