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Edited version of your written advice
Authorisation Number: 1012777712215
Ruling
Subject: Foreign employment income
Question and Answer
1. Is the income you derived from your employment in a foreign country during your training period assessable in Australia?
Yes.
2. Is the income you will derive from your employment in a foreign country flying in international routes assessable in Australia?
No.
This ruling applies for the following periods
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
The scheme commences on
1 January 2015
Relevant facts and circumstances
You have been employed as a pilot to work for an airline as a pilot.
The period of your employment is several years with the possibility of an extension.
The airline is based in a foreign country.
You will live in a foreign country several months for your initial on the ground training after which you will be based in Australia.
Your spouse and children will remain in Australia.
You will be operating on international passenger routes.
You employer will pay you a net salary. They will pay your tax liabilities in a foreign country and provide you with a tax certificate that will confirm this.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
International Tax Agreements Act 1953 Section 5
Income Tax Assessment Act 1936
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.
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 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).
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. A foreign country Agreement is listed in section 5 of the Agreements Act.
A foreign country Agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. A foreign country Agreement operates to avoid the double taxation of income received by residents of Australia and a foreign country.
A foreign country Agreement states at Article XX, paragraph 3:
Notwithstanding the provisions of paragraphs (1) and (2), remuneration derived in respect of an employment exercised aboard a ship or aircraft operated by an enterprise of a Contracting State in international traffic, shall be taxable only in the Contracting State of which the enterprise is a resident.
Training period
The income derived from your employment in a foreign country during your training period, was not "derived in respect of an employment exercised aboard a ship or aircraft operated by an enterprise of a contracting state in international traffic" and, consequently, is not exempt from tax in Australia under article XX(3) of a foreign country DTA. It is assessable in Australia as ordinary income under Subsection 6-5(2) of the ITAA 1997.
Flying period
The income derived from your employment in a foreign country during your flying period, is "derived in respect of an employment exercised aboard a ship or aircraft operated by an enterprise of a contracting state in international traffic" and, consequently, is exempt from tax in Australia under article XX(3) of a foreign country DTA. It is not assessable in Australia under subsection 6-5(2) of the ITAA 1997.