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Edited version of your written advice
Authorisation Number: 1051385798748
Date of advice: 14 June 2018
Subject: Income earned as a locally engaged staff
Question
Is income earned as a locally engaged staff member at the Country A Embassy assessable in Australia?
Answer
No
This ruling applies for the following period:
Year ended 30 June 20BB
Year ended 30 June 20CC
Year ended 30 June 20DD
Year ended 30 June 20EE
The scheme commences on:
1 July 20AA
Relevant facts and circumstances
You were hired by the Country A embassy in Summer 20AA as a locally engaged staff (LES) member.
You are a LES working at the Country A embassy performing governmental functions in Australia within the meaning of Article XX of the Double Tax Convention between Australia and Country A (the Convention).
You are a citizen of the Country A. You are also a citizen of Australia.
You are a resident of Australia for taxation purposes.
You are not a resident of the Country A for taxation purposes.
You moved to Australia and have resided in Australia since 20FF.
You became an Australian citizen in 20AA.
You are not a diplomat or a Foreign Service officer.
You maintain your permanent home in Australia.
Australia is not exercising its right under Article X of the Convention.
Relevant legislative provisions
Subsection 6-5(2) of the Income Tax Assessment Act 1997
Income Tax Assessment Act 1936
International Tax Agreements Act 1953
International Organizations (Privileges and Immunities) Act 1963
Reasons for decision
Locally Engaged Staff member income
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA) provides that 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 tax laws and 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 Income Tax Assessment Act 1936 (TAA) and ITAA 1997 so all the 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 circumstances.
The Convention and the Country A Protocol (amending the Convention) operate to avoid the double taxation of income.
Specific articles generally override the tiebreaker Article A (Residence). The article that is specific in your case is Article B (Governmental Remuneration).
Article B of the Convention is applicable for LES. 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 labour 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.
Your income is paid from Country A government funds and you are a citizen of Country A therefore it shall be exempt from tax by Australia under Article B.
However, Article C provides notwithstanding any provision of this Convention, except paragraph D of this Article, Australia may tax its residents (as determined under Article A (Residence)) as if this Convention had not entered into force.
As you are an Australian resident, Australia may tax your income.
In your case, you are employed as an LES member at the Country A embassy and are ordinarily a resident of Australia. As you are ordinarily a resident in Australia, Article D shall not affect the provisions of Article E.
As the provision of Article E affect your benefits conferred under Article A, your income earned as a LES member could be assessable income in Australia however, Australia, is not exercising its right under Article A.
Applying the law to your circumstances
As Australia is not exercising its right under Article A of the Convention, the income you receive as a LES member is only taxable in Country A. As your income is not assessable in Australia it is not reportable in Australia.
Double taxation
In your case there is no double taxation as income you receive as a LES member is not taxable or reportable in Australia.