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Ruling

Subject: Assessable income and DTA

Question and answer:

Is the income you derived from employment exercised in Australia assessable in Australia?

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts

You are a resident of country X and a non resident of Australia for income tax purposes.

You are an employee.

For a short period you worked in Australia and derived employment income in the form of salary and wages.

After completion of your duties you departed Australia.

Relevant legislative provisions

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

Reasons for decision

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

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

Source of Income

In determining the source of salary and wages income the following factors are considered to be relevant:

· negotiating and obtaining the contract of employment,

· performing the work, and

· payment for the services.

Common law has 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 considered to be less significant factors in determining the derivation of income. Consequently, in most cases the source of income will be the place where the work is performed.

Therefore, a foreign resident who works in Australia, whether for an Australian or foreign employer, will generally be liable to pay income tax in Australia. They may also be required to pay income tax in their home country.

Double tax agreement

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 double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the 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).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The country X Agreement is listed in section 5 of the Agreements Act.

Article B of the country X agreement advises that salaries, wages and other similar remuneration derived by a resident of country X shall be taxable only in country X unless the employment is exercised in Australia. If the employment is exercised in Australia then the income may also be taxed in Australia.

Conclusion

In your case, you are a resident of country X. You have received remuneration in the form of employee salary and wages which was derived as a result of exercising your employment in Australia. Therefore, Article B of the country X Agreement will operate to make the income derived assessable in Australia.

Accordingly, the income derived from your Australia employment will be included in your assessable income in Australia under subsection 6-5(3) of the ITAA 1997.