Edited version of private advice

Authorisation Number: 1052220917144

Date of advice: 9 February 2024

Ruling

Subject: International - residency - double taxation agreement

Question

Is the employment income you receive from XXXX for the work you perform for them assessable in Australia?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a citizen of XXXX.

You are not an Australian citizen.

You left Australia and moved permanently to XXXX in July 20XX.

Your spouse and two children moved to XXXX with you, and you continue to reside there.

You are a non-resident (foreign resident) for taxation purposes of Australia.

You are a resident of XXXX for tax purposes.

You are employed by the XXXX as a XXXX. You work remotely from your home in XXXX.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 section 6-10

International Tax Agreements Act 1953

Agreement between the Government of Australia and the Government of XXXX for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income

Reasons for decision

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a non-resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year.

The term 'Australian sourced' is defined in subsection 995-1(1) of the ITAA 1997 as being income that is 'derived from a source in Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).'

Generally, Australian courts 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; 7 AITR 76; 11 ATD 288).

In your situation, you are employed by an Australian entity and carry out employment services overseas.

The Double Taxation Agreement between Australia and XXXX provides that some types of income are to be taxed only by the country of residence of the recipient for the purposes of the DTA (the 'residence country').

Article 15 of the DTA regarding Dependent personal services states in paragraph 1 that: Subject to the provisions of Articles 16, 18, 19 and 20. Salaries, wages and other similar remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State.

The OECD Model Tax Convention on Income and Capital 2017 commentary on Article 15: Concerning the Taxation of Income from Employment states that paragraph one of the DTA establishes the general rule as to the taxation of income from employment, namely, that such income is taxable in the State where the employment is actually exercised. Employment is exercised in the place where the employee is physically present when performing the activities for which the employment income is paid.

In your situation, Australia is the other Contracting State. Article 15 of the DTA limits Australia's taxing right to only that portion of your employment income that is from employment exercised in Australia. In your case, none of your employment income is from employment that has been or will be exercised in Australia.

Consequently, as a resident of XXXX, your employment income while working in XXXX is not assessable in Australia.

Other consequences due to your employment income not being assessable in Australia.

One consequence of your employment income while working in XXXX not being assessable in Australia is that it meets the definition of 'exempt income' in section 6-20 of the ITAA 1997.

Being exempt income, subsection 12-1(1) of Schedule 1 to the Taxation Administration Act 1953 authorises the XXXX to ignore the direction in section 12-35 to withhold from such payments.