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Edited version of your written advice
Authorisation Number: 1013028546124
Date of advice: 8 June 2016
Ruling
Subject: Foreign Income - Double Tax Agreement
Question 1
Is the income that you earned from foreign employment during your training period (1 July 20XX to 30 August 20YY) as a contractor with an overseas company assessable in Australia?
Answer
Yes.
Question 2
Is the income that you earned from foreign employment as a contractor with an overseas company (from 1 September 2016) assessable in Australia?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
The scheme commences on:
On or after 1 July 20YY
Relevant facts and circumstances
On 1 July 20XX you commenced a contract with an overseas company.
You are employed as a contractor.
Your employment is based in Country X.
You will mainly work outside Australia.
You completed your training on dd/mm/yyyy. The majority of this training is in Country X.
After that all work will be performed outside Australia. Further testing and training will be completed on a six monthly basis in Country X as part of your ongoing employment.
You will not be re-locating your family nor do you anticipate moving your residence in Australia whether your job is rostered from Country X or elsewhere.
You will be taxed in Country X on the employment income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
International Tax Agreements Act 1953 Section 4
International Tax Agreements Act 1953 Section 5
Income Tax Assessment Act 1936
Agreement between the Government of Australia and the Government of Country X for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income
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 (DTA).
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. The Country X Agreement is listed in section 5 of the Agreements Act.
The Country X Agreement operates to avoid the double taxation of income received by residents of Australia and Country X.
The Country X Agreement states at Article 15, paragraph 3:
Notwithstanding the provisions of paragraphs (1) and (2), remuneration derived in respect of an employment exercise 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 Country X 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 15(3) of the Country X Agreement. 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 Country X 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 15(3) of the Country X Agreement. It is not assessable in Australia under Subsection 6-5(2) of the ITAA 1997.