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Ruling

Subject: Assessability of salary paid to a non-resident who is also a temporary resident

Question and answer:

Is the salary paid to you by your Australian based employer included in your assessable income in Australia?

No.

This ruling applies for the following period:

1 July 2011 to 30 June 2014.

The scheme commenced on:

1 July 2011.

Relevant facts and circumstances:

You are single and do not have a spouse.

You are a citizen of another country.

You are not an Australian citizen.

You are a resident of another country for taxation purposes.

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

You lived in Australia temporarily and worked for an Australian entity.

You left Australia and returned to live and work in another country.

You do not intend to return to Australia.

Your employment with the Australian entity has continued since you returned to the other country.

Your employment duties are carried out in the other country.

You are paid a salary by the Australian entity.

You were in Australia on a 457 visa which is still valid.

A 457 visa is a temporary visa issued under the Migration Act 1958.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-15

Income Tax Assessment Act 1997 Section 6-23

Income Tax Assessment Act 1997 Section 768-910

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Assessability of salary paid by an Australian based entity to a non-resident taxpayer who is also a temporary resident

Amounts of salary paid to an individual are considered to be ordinary income for the purposes of Australia's tax law and depending on the circumstances, may or may not be included in the individual's assessable income in Australia.

The first thing to consider in determining whether or not an amount of ordinary income is included in an individual's assessable income in Australia is the residency status of the individual.

You have stated that you are a non-resident of Australia for taxation purposes.

The assessability of amounts of ordinary income such as salary generally falls for consideration under the provisions of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

As a non-resident of Australia for taxation purposes, subsection 6-5(3) of the ITAA 1997 specifies that your assessable income will include:

· the ordinary income you derive directly or indirectly from all Australian sources during the income year, and

· any amounts of ordinary income that are included by another provision of the tax law on some basis other than having an Australian source.

The 'source' of your salary therefore becomes the next thing we must consider in order to determine whether or not your salary is assessable in Australia.

The concept of 'source' of income has been considered by the courts in Australia and in general, the courts have held that the source of employment income is where the employee performs their duties (C of T (NSW) v. Cam and Sons Ltd (1936) 36 SR (NSW) 544; 4 ATD 32 and FC of T v. French (1957) 98 CLR 398; (1957) 7 AITR 76; 11 ATD 288).

Regardless of the fact that your employer is an Australian based entity, we consider the source of your salary to be the country in which you are performing your duties.

Accordingly, unless the salary you are being paid is made assessable by some other provision of the tax law, the salary paid to you by your Australian employer will not be included in your assessable income in Australia under the provisions of subsection 6-5(3) of the ITAA 1997.

Although an individual may be a non-resident of Australia for taxation purposes, the circumstances may be such that the individual will also be regarded as a temporary resident for taxation purposes. In these situations, there are specific provisions in the tax law regarding the assessability of income derived by temporary residents that must be considered.

An individual who is a non-resident of Australia for taxation purposes will also be considered a temporary resident of Australia for taxation purposes if:

· they hold a temporary visa granted under the Migration Act 1958, and

· they are not an Australian resident within the meaning of the Social Security Act 1991, and

· they do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

Under the Social Security Act 1991 an Australian resident is a person who resides in Australia and is either an Australian citizen or holds a permanent resident Visa.

You have stated you are a non-resident of Australia for taxation purposes. You are also are also a temporary resident of Australia for taxation purposes because:

· you are single and do not have a spouse,

· you hold a temporary visa issued under the Migration Act 1958, and

· as you do not reside in Australia or hold a permanent visa, you are not an Australian resident within the meaning of the Social Security Act 1991.

The temporary resident provisions about assessable income are contained in section 768-910 of the ITAA 1997

Subsection 768-910(1) of the ITAA 1997 makes ordinary income derived by a temporary resident from a source outside Australia non-assessable, non-exempt income (and therefore not assessable income under the provisions of 6-15(3) of the ITAA 1997). However, salary from a source outside Australia is specifically precluded from the exemption provided for by subsection 768-910(1) of the ITAA 1997.

It is important to note that subsection 768-910(3) of the ITAA 1997 does not operate to specifically include salary from a non-Australian source into a temporary resident's assessable income in Australia. The only effect of the subsection in your case is that the salary paid to you by the Australian entity cannot be excluded from your assessable income on the grounds that the amount is non-assessable, non-exempt income.

Conclusion

Although you are subject to the temporary resident provisions of the tax law, there is nothing in those provisions (or in any other provision of the tax law) that specifically includes the salary paid to you by your Australian employer in your assessable income in Australia.

Accordingly, as a non-resident of Australia for taxation purposes, the salary being paid to you by your Australian employer is not included in your assessable income in Australia under the provisions of subsection 6-5(3) of the ITAA 1997.

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