Edited version of your written advice

Authorisation Number: 1013105154213

Date of advice: 10 October 2016

Ruling

Subject: Consulate Employee

Question 1

Is your employment income received as locally engaged staff and as a citizen of Country A to perform government functions of the Country A Consulate in Australia, taxable in Australia under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer:

No

Question 2

Is your employment income received as locally engaged staff and as a citizen of Country A to perform government functions of the Country A Consulate in Australia, reported in your Australian taxation return?

Answer:

Yes

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 citizen of both Australia and Country A.

You are a resident of Australia for taxation purposes.

You are currently employed with the Country A Consulate in City B. You commenced employment in XXXX.

You are hired and currently paid as a Staff.

You are not a Diplomat or a Foreign Service officer.

You have been lodging your Australian Income Tax Returns as an Australian resident and declaring your salary earned from the Country A

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(2).

Reasons for decision

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

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

In determining liability to Australian tax on foreign sourced income received by an Australian resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement enforceable under the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one. In the event of inconsistent provisions, the Agreements Act overrides the ITAA 1936 and ITAA 1997 except in some limited situations.

The Country A Convention and the Country A Protocol, amending the Convention, operate to avoid the double taxation of income.

Specific articles generally override the tiebreaker article 4. The article that is specific in this case is article 19.

Article 19, Governmental Remuneration, of the Country A Convention is applicable for locally engaged staff. It states,

Wages, salaries, and similar remuneration, including pensions, paid from funds of one of the Contracting States, of a state or other political subdivision thereof or of an agency or authority of any of the foregoing for labor or personal services performed as an employee of any of the above in the discharge of governmental functions to a citizen of that State shall be exempt from tax by the other Contracting State.

As you are an employee of the Country A Government discharging governmental functions and you are a citizen of Country A, your salary and wages are exempt from taxation in Australia and only taxable in the Country A.

Exempt foreign earnings are taken into account in calculating the tax payable on other income derived by a taxpayer. This method of calculation referred to as exemption with progression prevents the exempt income from reducing the Australian tax payable on the other income. This income needs to be included as exempt foreign salary and wages income in your Australian tax return.