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Edited version of your private ruling
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Ruling
Subject: Assessability of salary
Question and answer
Is your salary taxable in Australia?
No.
This ruling applies for the following periods:
Year ended 30 June 2012
The scheme commenced on:
1 July 2011
Relevant facts and circumstances
You are a citizen of Country X.
You are a resident of Australia.
You are employed by the Country X Ministry of Foreign Affairs at the Country X Embassy in Australia.
The Country X Ministry of Foreign Affairs states in its employment guide that locally engaged staff are not to be considered public servants but employees of the local private sector.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Subsection 6-5(2).
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
The double tax agreement (DTA) between Australia and Country X operates to avoid the double taxation of income. Where the DTA and the Australian tax legislation are inconsistent, the DTA overrides the Australian tax legislation.
According to Article 14 of the DTA, remuneration derived by an individual who is a resident of Australia in respect of an employment shall be taxable only in Australia unless the employment is exercised in Country X. However, Article 14 of the DTA is subject to Article 18 of the DTA, which relates to government service.
According to Article 18 of the DTA, salary and wages paid by Country X to citizens of Country X in respect of services rendered to Country X shall only be taxable in Country X, even if the services are rendered in Australia.
In your case, you are a citizen of both Country X and Australia. You are employed by the Country X Ministry of Foreign Affairs. You are rendering services in Australia at the Country X Embassy and you are being paid for your services by the Country X Ministry of Foreign Affairs.
Therefore, in accordance with Article 18 of the DTA, the salary you earn in respect of these services is not taxable in Australia.
The fact that the Country X Ministry of Foreign Affairs states in its employment guide that locally engaged staff are not to be considered public servants but employees of the local private sector, does not change this, as you are still rendering services to, and being paid by, the Country X Ministry of Foreign Affairs.
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