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Edited version of private ruling
Authorisation Number: 1011723240576
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Ruling
Subject: Exempt employment income - government service
Question
Is the remuneration you derive from employment with an overseas bank exempt from tax in Australia?
Answer: Yes.
This ruling applies for the following period
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2009
Relevant facts and circumstances
You are a national of Country X.
You are not an Australian citizen.
You are a temporary resident of Australia, living and working in Australia while holding a temporary resident visa.
You are an employee of an overseas bank.
Your remuneration is in relation to your employment services for the overseas bank in Australia.
The overseas bank is 100% owned by the government of Country X, which has general authority to monitor operations and provide funding approval.
We consider that the overseas bank is not carrying on a business in Australia.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(3)
International Tax Agreements Act 1953 Section 4
Reasons for decision
Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident includes ordinary income derived directly or indirectly from all Australian sources during the income year.
In determining liability to tax on Australian sourced income received by a foreign resident, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).
Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except in some limited situations).
A schedule to the Agreements Act contains the tax treaty between Australia and Country X (the Country X Convention). The Country X Convention operates to avoid the double taxation of income received by Australian and Country X residents.
An article of the Country X Convention exempts from Australian tax remuneration paid by the government of Country X to an individual for services rendered in the discharge of governmental functions for the Country X government unless the individual is an Australian citizen or ordinarily resident in Australia.
However, another article of the Country X Convention provides that the above article does not apply to payments in respect of services rendered in connection with a business carried on by the Country X government.
In your case, the overseas bank is a fully controlled and funded financial institution of the Country X government that does not compete commercially with other financial institutions.
We accept that the overseas bank is not carrying on a business, and accordingly the other article of the Country X Convention will not apply.
You are an employee of the overseas bank, and are discharging governmental functions for the Country X Government. Further, you are not an Australian citizen or ordinarily resident in Australia. Accordingly, the remuneration you receive from the Country X government is exempt from tax in Australia under an article of the Country X Convention.
Consequently, the remuneration you receive from the overseas bank as an employee in Australia is not assessable under subsection 6-5(3) of the ITAA 1997.
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