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Edited version of your written advice
Authorisation Number: 1012744555731
Ruling
Subject: Assessability of foreign income and deductibility of expenses
Questions and answers
1. Is the income you receive from working overseas for 12 months assessable in Australia?
Yes.
2. Are you entitled to a deduction for your passport and visa, relocation, travel, accommodation and meals and living expenses?
No.
This ruling applies for the following periods:
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commenced on:
1 July 2014
Relevant facts and circumstances
You are a resident of Australia for taxation purposes.
You are taking leave without pay from your Australian employer to work overseas for a similar agency.
You will pay tax in the overseas country.
You have the following expenses in relation to your position overseas:
• Passport and visa expenses
• Relocation expenses
• Airfare and other travel expenses getting to the overseas country
• Accommodation and meal expenses prior to commencing work overseas
• Living expenses while working overseas
Relevant legislative provisions:
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Subsection 52-10(1A)
International Tax Agreements Act 1953 Section 4
International Tax Agreements Act 1953 Schedule 1 Article 15
Reasons for decision
Income
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, whether in or out of Australia, during the income year.
Salary and wages is ordinary income assessable under subsection 6-5(2) of the ITAA 1997.
In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.
Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).
Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The overseas agreement is listed in section 5 of the Agreements Act.
The agreement between Australia and the overseas country operates to avoid the double taxation of income received by residents of Australia and the overseas country.
Article XX of the overseas agreement considers the tax treatment of dependant personal services.
(1) Subject to the provisions of Articles 18 (Pensions, annuities, alimony and child support) and 19 (Governmental remuneration), salaries, wages and other similar remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment or in respect of services performed as a director of a company shall be taxable only in that State unless the employment is exercised or the services performed in the other Contracting State. If the employment is so exercised or the services so performed, such remuneration as is derived from that exercise or performance may be taxed in that other State.
Therefore your income derived while working in the overseas country is taxable in Australia and may also be taxed in the overseas country under article XX of the DTA between Australia and the overseas country.
Deductions
Section 8-1 of the ITAA 1997 deals with general deductions and allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that they are outgoings of a capital, private or domestic nature.
Generally, the expenses of travel to and from work are not deductible. This is either because such expenditure is private in nature, or because it is not an expense incurred in gaining or producing assessable income. The cost of travelling between home and work is generally incurred to put the employee in a position to perform duties of employment, rather than in the performance of those duties.
In your case you have incurred the following expenses in relation to your work in the overseas country:
• Passport and visa expenses
• Relocation expenses
• Airfare and other travel expenses getting to the overseas country
• Accommodation and meal expenses prior to commencing work in the overseas country
• Living expenses while working in the overseas country
All of the above expenses are private and domestic in nature. All of the expenses put you in a position to perform your work duties they are not incurred in the performance of those work duties.
Therefore the expenses are not deductable under section 8-1 of the ITAA 1997.
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