Edited version of private advice

Authorisation Number: 1051706079893

Date of advice: 25 June 2020

Ruling

Subject: Taxation of employment income

Question

Is the income you are earning from an Australian employer whilst a resident of Country Y assessable in Australia?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2021

The scheme commences on:

1 July 2020

Relevant facts and circumstances

You are an Australian and Country Y citizen.

You became a Country Y citizen in XXXX and was a permanent resident of Country Y prior to becoming a citizen.

You and your family live in Country Y.

You have been living in Country Y for a number of years.

You work for an Australian employer.

You will be paid into an Australian bank account that is registered in your name. You will then transfer money to Country Y.

You own an investment property in Australia.

You, your spouse and your children visit Australia every few years.

Your children are all Australian citizens.

You lodge a tax return annually in Australia for the purpose of reporting revenue on your rental property.

Relevant legislative provisions

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997 subsection 6-5(3)

International Tax Agreements Act 1953 section 4

Reasons for decision

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) explains that ordinary income derived by a non-resident directly or indirectly from Australian sources is assessable in Australia.

Salary and wages are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

Generally, employment income earned while being carried out overseas is considered to be sourced in that overseas country, unless it is merely incidental to the performance of your duties in Australia. This has been reinforced by Australian courts who have held that the source of employment income is where the employee performs their duties (C of T (NSW) v. Cam and Sons Ltd (1936) 36 SR (NSW) 544; 4 ATD 32 and FC of T v. French (1957) 98 CLR 398; (1957) 7 AITR 76; 11 ATD 288).

In determining the liability to tax on Australian sourced income received by a non-resident, it is necessary to consider not only the Australian 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 overrules 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 Convention between Australia and Country Y for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income [1981] ATS 14 (the Canadian Convention) is listed in section 5 of the Agreements Act.

Article XX of the Country Y Convention states, in effect, that remuneration, other than a pension or annuity, in respect of services rendered to a government (including a political subdivision or local authority) of Australia will be taxed only by Australia.

There is an exception where the remuneration is paid in respect of services rendered in Country Y and the recipient is, in broad terms, a citizen of, or ordinarily resident in Country Y. In that case the remuneration will be taxed only in Country Y.

You are a citizen of Country Y and have been living in Country Y with your family for a number of years.

You work for an Australian employer.

In accordance with Article 19 of the Country Y Convention as you are a citizen of Country Y and you had been a permanent resident of Country Y before working directly with the Australian employer, your income earned from that role will not be assessable in Australia.