Edited version of private advice

Authorisation Number: 5010073040138

Date of advice: 12 April 2021

Ruling

Subject: Whether your employment income is assessable income in Australia

Question 1

Is the income derived and received by you in the Foreign Country assessable income in Australia?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You both left Australia during the year ended 30 June 2018.

You are both Australian citizens.

You are both on a type of Working Holiday visa issued by the Foreign Country.

One Spouse has transitioned to a type of Business visa, which will allow that Spouse to stay in the Foreign Country for five years, after which that Spouse can apply for permanent residency.

The Second Spouse is in the process of having that Second Spouse's dependant visa approved.

You were both employed by The Employer in Australia before moving overseas.

Your services were both retained when you moved to the Foreign Country in the same or similar roles.

During the relevant years that this ruling relates you both performed your employment duties entirely in the Foreign Country.

During the relevant years that this ruling relates neither of you returned to Australia for business reasons.

During the relevant years that this ruling relates the Employer, continued to pay your respective salaries, including the withholding of PAYG amounts from the salaries.

The Employer paid your salaries through its Australian Office as it has no office in the Foreign Country to facilitate the payment of salaries.

In Mid 2020, the Second Spouse ceased employment with The Employer and took up employment with a Foreign Country-based company.

For the relevant period that this ruling relates you have both lodged tax returns in Australia declaring that you are non-residents for tax purposes.

For the relevant period that this ruling relates you both paid the Foreign Country's income tax.

For the relevant period that this ruling relates you both lodged the Foreign Country's tax returns.

Relevant legislative provisions

Income Tax Assessment Act 1936 sub-section 6-5(3)

Reasons for decision

Summary

The income you earned in the Foreign Country for the relevant period is not assessable income in Australia because you reside permanently in the Foreign Country, you are not residents of Australia and the source of the income is the Foreign Country where you perform the work.

Detailed reasoning

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that foreign residents are assessed only on income from Australian sources, and on certain other amounts that a provision includes in assessable income on a basis other than having an Australian source.

The tax legislation provides no definition of the term 'source', the meaning of the word must be taken from the principles that have been developed from decisions made under Common Law.

In the case of Commissioner of Taxation (NSW) v Cam & Sons Limited (1936) 4 ATD 32 (Cam's case) this case involved the source of salary and wages earned by fishermen involved in trawling both outside and inside NSW territorial waters. In the course of his judgment, Jordan CJ indicated that the source of services income depended on the following factors:

• negotiating and obtaining the contract of employment

• performing the work

• payment for the services.

This and subsequent cases have established that in the case of an ordinary contract for employment, the source of the income generally depends upon the place where the work is performed. The making of the contract and the place of payment are insignificant aspects of the processes leading to the derivation of the income.

As Jordan CJ stated in Cam's case (4 ATD at p 34):

In the ordinary course of the employment of a seaman...where there is nothing special, either in the circumstances of the contract of employment or in the payment, and where the work is both done and paid for in the ordinary course, the all-important factor is the doing of the work; and the contract of employment and the payment are relatively insignificant and formal elements.

Consequently, in most salary and wage cases, the source of the income will be the place where the work was performed.

The particular circumstances of each case must always be considered in case there is some distinguishing factor that would give one of the other elements more weight.

In French v Federal Commissioner of Taxation (1957) 98 CLR 398 (French's Case), the taxpayer was an Australian resident who was employed by an Australian company as an engineer in Australia under an oral contract. He normally worked in Australia and his salary was banked into an Australian bank account. During the year in question, he was required to work in New Zealand for several weeks. His salary for this period (£110) was paid into his Australian bank account in the usual manner.

The Full High Court held that the £110 was sourced in New Zealand. Given that there were no distinguishing features in Mr French's employment, the source of the income was the place where the employment services were performed.

Cam's case was cited as an authority for this case.

Application to your circumstances

You are not residents of Australia because you have made your permanent home in the Foreign Country. It is there that you live and work and have been doing so since the date of your departure from Australia. It is evident that you performed all of your employment duties within, and solely within, the Foreign Country. The principles established within both Cam's Case and French's Case apply in your circumstances meaning that where you perform your employment duties far outweighs the relatively insignificant factors of where you signed your employment contracts and from where you were paid, which are considered to be mere formalities by the Courts. This means that subsection 6-5(3) of the ITAA 1997 applies in your case in that your only assessable income is income that was derived from within Australia.

Other Information

Your assessable income does not include any income derived by you in the service of your Employer for the entire time that you were/are in the Foreign Country. This means that your Employer has no legal obligation to withhold PAYG.

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