Edited version of private ruling

Authorisation Number: 1011758375462

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Ruling

Subject: Assessable income

Question

Is your income derived from your Australian employer for work performed outside of Australia, assessable in Australia?

Answer

No.

This ruling applies for the following period

Income year ended 30 June 2010

Relevant facts

You stated that you are a foreign resident of Australia for income tax purposes.

You were employed by an Australian employer.

During the relevant income year, you stated that you performed work outside of Australia for your Australian employer.

Your Australian employer provided you with a payment summary with tax withheld from your gross income.

Assumptions

Relevant legislative provisions

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

Reasons for decision

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1977) provides that if you are a foreign resident your assessable income includes

· ordinary income derived directly or indirectly from all Australian sources, and

· other ordinary income included by a provision on a basis other than having an Australian source.

Salary and wages are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

Generally, Australian 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 Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 7 AITR 76; (1957) 11 ATD 288). The courts also confirmed that it is appropriate to apportion income earned to reflect the source of income. Thus, employment income earned while carrying out duties in Australia is considered to be sourced in Australia. Employment income earned while being carried out overseas is considered to be sourced in that overseas country, unless it is merely incidental to the performance of the taxpayer's duties in Australia.

Therefore, salary and wages income derived from work performed outside of Australia is not considered to be Australian source income.

Paragraph 6-5(3)(b) of the ITAA 1997 was introduced by the Income Tax Assessment Bill 1996. The Explanatory Memorandum to that Bill (the EM) makes it clear that paragraph 6-5(3)(b) was only intended to apply in limited circumstances. The relevant part of the EM states:

Most ordinary and statutory income from foreign sources is not assessable to foreign residents. However, there are limited cases where an amount is assessed on a specifically expressed basis ... (emphasis added) (eg. the capital gains and losses provisions bring to account gains and losses on the disposal of a 'taxable Australian asset' rather than on Australian-sourced capital gains and losses).

Consequently, salary and wages income derived by a foreign resident from services performed outside of Australia is not intended to be included under paragraph 6-5(3)(b) of the ITAA 1997.

Accordingly, salary and wages income derived by a foreign resident from services performed outside of Australia is not assessable under subsection 6-5(3) of the ITAA 1997.