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Edited version of your written advice
Authorisation Number: 1013134230637
Date of advice: 1 December 2016
Ruling
Subject: Foreign business income
Question and answer
Is the income you derive from providing business services assessable in Australia?
No.
This ruling applies for the following periods:
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
The scheme commences on:
1 July 2016
Relevant facts and circumstances
You left Australia to live in Country X.
You are a non-resident of Australia for taxation purposes.
You carry on a business of providing business support services from your home in Country X.
You do not provide your services from a place of business in Australia.
You provide services to Australian based clients.
Your clients remit payments for services into your Australian bank account.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
International Tax Agreements Act 1953 Section 4
International Tax Agreements Act 1953 Section 5
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source.
The source of a taxpayer's income (derivation) is the place where the services are performed: French v. FC of T (1957) 98 CLR 398.
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 agreement.
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 agreement with Country X is listed in section 5 of the Agreements Act.
The agreement between Australia and Country X (the Country X agreement) operates to avoid the double taxation of income by allocating taxing rights to either Australia or Country X.
An article of the Country X agreement specifies that the business profits of an enterprise of Country X will be taxable only in that country unless the enterprise carries on business in Australia through a 'permanent establishment' situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in Australia, but only so much of them as is attributable to that permanent establishment.
Another article of the Country X agreement defines a 'permanent establishment' as being a fixed place of business in which the business of the enterprise is wholly or partly carried on. A permanent establishment includes any place of business, such as a place of management, a branch or an office.
In your case, you carry on business activities from your home in Country X and do not carry out any activities from a place of business in Australia.
Therefore, the income you derive from providing business services is not assessable in Australia.
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