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Edited version of your private ruling
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Ruling
Subject: Assessable income - non-resident seafarer
Question
Is the income that you earned while employed aboard a ship in Australian territorial waters assessable in Australia?
Answer
No
This ruling applies for the following period
Year ended 30 June 2010
The scheme commences 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 are a resident of Country X.
You are employed as a seafarer by a company based in Country Y on a vessel registered in another country.
During the 2009-10 income year your vessel did not exceed 183 days operating in Australian territorial waters.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 6-5(3).
International Tax Agreements Act 1953 section 4.
Reasons for decision
Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that ordinary income derived by a foreign resident directly or indirectly from Australian sources, as well as other ordinary income included by a provision on a basis other than having an Australian source, is assessable in Australia.
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 as in case Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 7 AITR 76; 11 ATD 288). 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.
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 tax treaties.
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).
The Country X Agreement operates to avoid the double taxation of income received by residents of Australia and Country X.
An article of the Country X Agreement provides that salary and wages derived by a resident of Country X for employment exercised in Australia may be taxed in Australia.
However, the article also provides that the income will only be taxed in Country X if:
§ the taxpayer is present in Australia for a period or periods not exceeding in 183 days in the Australian income year; and
§ the remuneration is paid by or on behalf of, an employer who is not a resident of Australia; and
§ the remuneration is not deductible in determining the profits of a permanent establishment or a fixed base which the employer has in the Australia.
In your case, you did not exceed 183 days in Australian Territorial waters in the 2009-10 income year. You are employed by a Country Y company on a vessel registered in another country.
The conditions for this income to be taxed only in Country X are met.
Consequently, the income that you earned while employed in Australian territorial waters in the 2009-10 income year is not assessable in Australia under subsection 6-5(3) of the ITAA 1997.