Edited version of private advice

Authorisation Number: 1052324228104

Date of advice: 15 January 2025

Ruling

Subject International income

Question 1

Is the income you derive from rendering services in Country B to the University exempt from taxation in Australia under section 6-20 of the Income tax Assessment Act 1997 (ITAA 1997) on the basis the income is exempt under the double tax agreement between Australia and Country B?

Answer 1

Yes.

Question 2

Is the income you derive from rendering services in Australia to the University subject to tax only in Australia under the double tax agreement between Australia and Country B?

Answer 2

Yes.

Question 3

Are you entitled to claim a Foreign Income Tax Offset (FITO) under section 770-10 of the ITAA 1997 for Country B tax paid on the income you derive from rendering services in Australia to the University?

Answer 3

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are an Australian and Country B citizen.

You are an Australian resident for tax purposes.

On XX XX 20XX you entered into an Employment Agreement with a Country B University (the University) located in Country B.

You visit Country B to conduct work annually but also conduct work online in Australia as part of your employment.

Your work intensifies while you're in Country B; however, a notable share is completed while in Australia.

Your travel arrangements vary depending on your availability and the nature of the tasks.

In 20XX you spent XXX days in Country B.

You receive payments from the University while in Australia. Your payments are uniform throughout the year, no additional tax is withheld for services rendered in Australia.

The University is a government agency, under the government, and is governed by laws, ordinances and decisions made by the Country B government. Employees of the University are employees of the state.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-20

Income Tax Assessment Act 1997 section 770-10

Income Tax Assessment Act 1997 section 770-15

International Tax Agreements Act 1953

Reasons for decision

An Australian resident's assessable income includes ordinary income from all sources during the income year, whether in or outside of Australia (section 6-5 of theITAA 1997).

However, an amount is exempt income under section 6-20 of the ITAA 1997 where it is excluded from assessable income under a double tax agreement Australia has with another country that is listed in the International Tax Agreements Act 1953.

Australia has entered into a double tax agreement with Country B (the Agreement).

Your employer is a government agency under the Government and is governed by laws, ordinances and decisions made by the Country B Government. As such the Agreement specifies the tax treatment of government service payments of a Contracting State as follows:

1. Remuneration (other than a pension or annuity) paid by one of the Contracting States or a political sub-division or local authority of that State to any individual in respect of services rendered in the discharge of governmental functions shall be taxable only in that State. However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that other State and the recipient is a resident of that other State who:

(a) is a citizen of that State; or

(b) did not become a resident of that State solely for the purpose of performing the services.

The Agreement also states the following regarding methods of the elimination of double taxation:

1. Subject to the provisions of the law of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall not affect the general principle hereof), Country B tax paid under the law of Country B and in accordance with this Agreement, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in Country B (not including, in the case of a dividend, tax paid in respect of the profits out of which the dividend is paid) shall be allowed as a credit against Australian tax payable in respect of that income...

Application to your circumstances

In your case, you receive an annual salary from Country B for services predominantly rendered in Country B. You also perform a notable share of work in Australia.

Therefore, according to the terms set in the Agreement your income will need to be apportioned on a reasonable basis according to the amount of work carried out in either Australia or Country B. As an Australian citizen, the services rendered in Australia will only be taxable in Australia and equally, services rendered in Country B will be taxable only in Country B.

Foreign income tax offset

Subsection 770-10(1) of the ITAA 1997 provides that a person is entitled to a FITO for foreign tax paid in respect of an amount that is included in the person's assessable income in a year of income.

The tax offset has the effect of reducing the Australian tax that would otherwise be payable on the double-taxed amount. A FITO is a non-refundable tax offset.

Section 770-15 of the ITAA 1997 defines foreign income tax to include a tax on income that is imposed by a law other than an Australian law. A note to section 770-15 of the ITAA 1997 states that foreign income tax includes only that which has been correctly imposed under the foreign law or, where the foreign jurisdiction has a tax treaty with Australia (having the force of law under the International Tax Agreement Act 1953), has been correctly imposed in accordance with that tax treaty.

Based on your circumstances, part of your income derived from the University is taxable solely in Australia and the other solely in Country B. The FITO would not be applicable in this instance as, when applying the Agreement, each portion will be taxed exclusively in the country the apportioned income relates.

The elimination of double taxation Article of the Agreement also confirms that Australia can only allow a credit against Australian tax for tax levied in Country B where the tax is levied in accordance with the Agreement.

Therefore, you are not entitled to claim a FITO under section 770-10 of the ITAA 1997 for Country B tax paid on the income you derive from rendering services in Australia to the University.