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Ruling

Subject: Assessability of income received from an Australian entity

Question and answer:

Is the income derived from an Australian entity while your employment was exercised in country Y subject to Australian income tax?

No.

This advice applies for the following period:

Year ended 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts

You are a country Y national.

You had been working in Australia for an extended period and were a temporary Australian resident, however a resident for income tax purposes.

After a period you returned to country Y permanently and ceased to be an Australian resident for tax purposes.

After returning to country Y you continued to work and derive income from an Australian entity for a short period from work exercised in country Y

Your income has been subject to Australian Pay as you Go withholding tax as applicable to resident employees.

You have also been subject to income tax from the country Y Authorities.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

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 Y Agreement is listed in section 5 of the Agreements Act.

The country Y Agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The country Y Agreement operates to avoid the double taxation of income received by residents of Australia and country Y.

Article 14(1) of the country Y Agreement advises that salaries, wages and other similar remuneration derived by a resident of country Y shall be taxable only in country Y unless the employment is exercised in Australia. If the employment is exercised in Australia then the income may also be taxed in Australia.

In your case, the income that you earned after returning to country Y was paid by an Australian entity, however as the employment during this period was exercised solely in country Y the income will be assessable only in country Y.

Accordingly, the income that you derived while exercising your employment in country Y is not subject to Australian income under section 6-5 of the ITAA 1997.