1051324427422 | Legal database

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Edited version of your written advice

Authorisation Number: 1051324427422

Date of advice: 17 January 2018

Ruling

Subject: Assessable Income

Question

Is the income you earned whilst carrying out the duties of your work for an Australian company and living in Country Z assessable in Australia?

Answer

This ruling applies for the following period:

Year ending 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

You are a resident of Country Z for tax purposes.

You moved permanently to Country Z in 2016.

You signed a contractor agreement with a company based in Australia in 2017.

The jurisdiction of the contract is Country Z.

You receive remuneration from your employer for your services performed in Country Z.

You performed your services to the company in Country Z.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 subsection 6-5(3)

International Tax Agreements Act 1953

Reasons for decision

Summary

Your income earned whilst carrying out duties of your work for an Australian company and living in Country Z is not assessable in Australia under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed Reasoning

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a foreign resident includes the ordinary income derived directly or indirectly from all Australian sources during the income year. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source.

The income derived from performing services is ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

In determining 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).

There is a double tax agreement between Australia and Country Z (Country Z agreement) to prevent double taxation and fiscal evasion, and foster cooperation between Australia and other international tax authorities by enforcing their respective tax laws.

The term “business” under Article 3 of the Country Z agreement includes the performance of professional services and of other activities in an independent character.

Under Article 7 of the Country Z Agreement, the business profits of an enterprise of Country Z shall be only taxable in the Country Z unless the enterprise carries on business in Australia through a permanent establishment situated in Australia.

The term 'permanent establishment' is defined in Article 5(1) of the Country Z Agreement as a fixed place of business through which the business of an enterprise is wholly or partly carried on.

Article 5(6)(a) of the Country Z Agreement provides that an enterprise shall not be deemed to have a permanent establishment merely by reason of the use of facilities solely for the purpose of storage, display or delivery of goods belonging to the enterprise.

In your circumstances, you are a resident of Country Z and a contractor for an Australian company. The income you earn while carrying out the duties of your employment with the Australian company has a Country Z source as you are physically present in Country Z when you carry out your duties. You are considered to be in the course of carrying on a business as you are performing professional services in an independent character as a contractor in Country Z. Hence it is accepted your permanent establishment is in Country Z.

Consequently, Article 7 of the Country Z Agreement applies, and the profit of the business, so much of them as is attributable to that permanent establishment, is not taxable in Australia. The income from the services performed attributable to the permanent establishment is therefore not assessable under subsection 6-5(3) of the ITAA 1997.

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