Edited version of private ruling

Authorisation Number: 1011791126476

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Ruling

Subject: Foreign employment income

Question 1

Is your salary paid by an Australian employer for work performed in country X assessable in Australia?

Answer

No

Question 2

Is your salary paid by an Australian employer for work performed in Australia assessable in Australia?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2010

Year ending 30 June 2011

The scheme commenced on

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You left Australia permanently in 2009.

You lived in Australia from 20xx to early 2009 and worked for an Australian company.

The Australian company is an Australian resident company and it has a permanent establishment in Australia.

You are a resident of country X and a country X citizen.

During 2010, you resumed work with the Australian company and since then have lived in country X and worked exclusively from there. You work at home in country X and use the internet to upload and download working files between your employer's computer server and your computer. You use email and phone to keep in touch with your colleagues and clients.

You declared your salary from the Australian company as taxable income in your 2009-10 Australian tax return.

The Australian company has been withholding tax from your salary from 1 July 2010 to 30 June 2011.

You spent short periods of time in 2010 and 2011 working in Australia, to get up to speed on your work. You spent a number of weeks working in Australia in the 2009-10 income year and a further number of weeks in the 2010-11 income year.

Relevant legislative provisions

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

Article 16(1) of the Schedule 20 of the International Tax Agreements Act 1953

Article 16(2) of the Schedule 20 of the International Tax Agreements Act 1953

Subsection 12-1(1) of Schedule 1 of the Taxation Administration Act 1953

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident of Australia includes all the ordinary income derived directly or indirectly from all Australian sources during the income year.

A foreign resident is a person who is not a resident of Australia.

Salary and wages are regarded as ordinary income.

Work performed in country X

Generally, Australian courts have held that the source of employment income is where the employee performs their duties (Commissioner of Taxation (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; 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.

Your employment duties carried on outside of Australia are considered to be sourced out of Australia. Therefore the income you derived in relation to such employment is not assessable in Australia under subsection 6-5(3) of the ITAA 1997.

Work performed in Australia

In determining the liability to tax on Australian sourced income received by a foreign resident, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (the Agreements Act).

A schedule to the Agreements Act contains the tax treaty between Australia and country X (the country X Agreement). The country X Agreement operates to avoid the double taxation of income received by Australian and country X residents.

An article of the country X Agreement provides that salary and wages derived by country X resident in respect of an employment exercised Australia may be taxed in Australia. However, a subparagraph of the previous article of the country X Agreement provides that such salary and wages shall be taxed only in country X if all the conditions are met:

a) the recipient is present in Australia for a period or periods not exceeding in the aggregate 183 days in the year of income or year of assessment, as the case may be, of Australia; and

b) the remuneration is paid by, or on behalf of, an employer who is not an Australian resident; and

c) the remuneration is not deductible in determining the taxable profits of a permanent establishment or a fixed base which the employer has in Australia.

In your case, you spent less than 183 days on each of the period that you worked in Australia, your employer is an Australian resident for tax purposes and your employer has a permanent establishment in Australia, Article 16(2) will not apply to deny Australian taxing rights on the salary and wages income.

Accordingly, the salary you received for work performed in Australia is included in your assessable income in Australia under subsection 6-5(3) of the ITAA 1997.

Note:

To enable us to amend your tax return for the 2009-10 income year, you need to advise us of the amount that relates to salary paid for your work performed in country X.

In terms of your employer's Pay As You Go (PAYG) withholding obligations, subsection 12-1(1) of Schedule 1 of the Taxation Administration Act 1953, provides that an entity need not withhold an amount from a payment if the whole of the payment is exempt income of the recipient.

You may wish to advise your employer that your earnings that are sourced in country X are exempt so that no PAYG tax will be withheld from these earnings.