Edited version of private advice

Authorisation Number: 1052061113520

Date of advice: 21 November 2022

Ruling

Subject: International income

Question 1

Will your employment income be subject to tax while working for your employer remotely in Country X?

Answer

Yes.

Question 2

Will you be entitled to a tax offset for the tax that you are required to pay in Country X?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for income tax purposes.

You are an Australian citizen.

You are currently renting a property in Australia.

Your lease will expire in XX/20XX.

You do not intend to renew this lease.

You work full-time in Australia.

You have been employed for several years.

You intend to move to Country X with your spouse in XX/20XX.

You intend to stay with a relative briefly before moving to Country X.

Your spouse has a contract to work in Country X.

Your spouse is employed by a company in Country X.

Your spouse intends to obtain a working visa in Country X.

You intend to reside in Country X on a dependant visa.

Your spouse's original contract is for a year.

Your spouse's contract may be extended.

You intend to rent a property in Country X once you have moved there.

You do not own any property in Australia.

You will continue to hold Australian bank deposits and shareholdings.

Your extended family will continue to reside in Australia.

You will continue to work fulltime for your employer remotely whilst you are in Country X.

Your salary will be paid into your Australian bank account.

You will remain a resident of Australia for income tax purposes for the 20XX-XX and 20XX-XX income years.

Relevant legislative provisions

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

International Tax Agreements Act 1953 Section 4

Income Tax Assessment Act 1997Subsection 770-15(1)

Income Tax Assessment Act 1997Section 770-70

Income Tax Assessment Act 1997Section 770-75

Reasons for decision

Question 1

Subsection 6-5(2) of the Income Tax Assessment Act 1997(ITAA 1997) provides that the assessable income of an Australian resident includes all the 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 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).

Australia and Country X have a double tax agreement.

This agreement provides that salary and wages and other similar remuneration derived by an Australian resident shall be taxable in Australia unless the employment is exercised in Country X. If the employment is exercised in Country X, then the income may be taxed in Country X.

However, Article X in this agreement also provides that remuneration derived by an Australian resident in respect of an employment exercised in Country X will be taxable only in Australia if:

•         the recipient is present in Country X for a period or periods not exceeding in the aggregate 183 days in any 12-month period commencing or ending in the taxable year of Country X.

•         the remuneration is paid by, or on behalf of, an employer who is not a resident of Country X and

•         the remuneration is not borne by a permanent establishment which the employer has in Country X.

In your case, all the conditions in Article X are not met. Therefore, your salary may be subject to tax in Country X under the Country X agreement.

Taxation Ruling TR 2001/13 provides interpretation of Australia's tax treaties. In particular paragraphs 22 to 26 provide an interpretation on the words used to allocate taxing rights.

Paragraph 23 of TR 2001/13 provides that the phrase 'may be taxed' normally means that the source country has a non-exclusive entitlement to tax the income. Under normal international tax principles, the residence country may also continue to tax its residents (where its normal domestic law so provided) on the income, wherever sourced, unless the tax treaty explicitly prevents it from doing so.

Accordingly, the salary derived by you as an Australian resident from employment exercised in Country X is also assessable in Australia under subsection 6-5(2) of the ITAA 1997.

Question 2

Article X of the Country X Convention provides that where income sourced in Country X is taxed in Australia, a credit for the Country X tax paid shall be allowed against the amount of Australian tax payable in respect of that income.

A tax offset will be available for those foreign income taxes that are substantially equivalent to Australian income tax. That is, the foreign income tax must be levied on the taxpayer's income, profits or gains of an income or capital nature, or be similar to Australian withholding tax that is imposed in place of a tax on the net amount of income (subsection 770-15(1) of the ITAA 1997).

The offset is based on the total foreign income tax paid, however, it is limited to the amount of Australian income tax that would have been payable on the relevant income (sections 770-70 and 770-75 of the ITAA 1997).

That is, when claiming a foreign income tax offset of more than $1,000 you need to calculate your foreign income tax offset limit. For information on this, please refer to the Guide to foreign income tax offset rules on the Australian Taxation Office website www.ato.gov.au. You can only claim an offset up to the amount of that cap. Any excess offset cannot be carried forward to a later income year.

In your case, you will derive your salary in Country X, and you may pay tax In Country X on that salary. This foreign tax will be eligible for credit against your Australian income tax.