Edited version of private advice

Authorisation Number: 1052329570307

Date of advice: 14 November 2024

Ruling

Subject: Foreign resident - assessable income

Question 1

Is the income you derived from your contract with the Country Service included in your assessable income?

Answer

No.

Your income derived from your employment and services rendered at the Country Service is not assessable in Australia in accordance with section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

Question 2

Is the income you derived from your employment with an employment agency included in your assessable income?

Answer

Yes.

This ruling applies for the following period:

XX/XX/20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a citizen of another Country.

You hold a Special Category Visa.

You are a resident of another country for tax purposes.

You are not a resident of Australia for tax purposes.

The Country Service

On XX/XX/20XX you were provided an agreement (the agreement) for the provision of your services at the Country Services' sites.

On XX/XX/20XX you commenced an agreement with the Country Service (CS) to work at certain sites which they are responsible for, as a contractor. Expiry date of the agreement is XX/XX/20XX.

From XX/XX/20XX to XX/XX/20XX, you worked at one of the CS sites.

The letter of the agreement dated XX/XX/20XX states that the provisions of services attached to your appointment include the following:

The Contractor agrees to provide Services to the Public at the sites (s) listed at Item 4 of Schedule 1, and any Additional Services as set out at Schedule 2.

Under schedule 3 of the agreement, payments for services states, full day rate of $XXXX.XX at the sites (rate covers all hours worked during any 24-hour period commencing at the start of a shift) plus 10% GST if applicable inclusive of all other allowances and payments for actual hours worked, including close availability. Paid on receipt of a tax invoice.

Under clause 5 of the agreement, subject to the provisions of this clause 5, the CS will pay the Contractor for Services in accordance with Schedule 3 within 20 days of receipt of an invoice complying with the statutory requirements of a Tax Invoice.

The Contractor agrees to submit regular invoices complying with the statutory requirements of a Tax Invoice. For Services, the invoice must specify the following minimum information:

•         Contractor's invoice number and issue date of invoice.

•         Contractor's Australian Business Number.

•         Site at which the services were provided.

•         The agreement Contract Number under which the services were provided.

•         Site Number and name of the Contractor.

•         Date the relevant service was provided.

•         Number of occasions the relevant service was provided and any other service qualifiers including but not limited to applicable modifiers and times of service.

•         Description of services provided or item number (if applicable);

•         Agreed fee, exclusive of GST, for the relevant service; and

•         GST payable.

•         Payment details.

Recruitment Agency

On XX/XX/20XX the recruitment agency, Australian Company Number (ACN) XXX XXX XXX, offered you a contract as a 'PAYG casual employee'.

The letter of offer stated that the offer of employment would become a legally binding employment agreement between the company and you once you had accepted the offer.

The contract date commenced on XX/XX/20XX and ended on XX/XX/20XX.

From XX/XX/20XX to XX/XX/20XX, you worked at a place of employment under the contract with the recruitment agency.

All remuneration was paid by the recruitment agency, and the company would make the minimum superannuation contributions required under the superannuation legislation.

The letter of contract dated XX/XX/20XX provided the following remuneration conditions:

•         Rates of pay: Standard: $XXXX.XX per day.

•         All rates are inclusive of super unless otherwise stated. You will be paid upon receipt of a client signed timesheet. Your remuneration will be paid within 7 days of submitting your timesheet, less applicable tax, via electronic funds transfer into your nominated bank account.

On XX/XX/20XX you left Australia to return to your home country.

You did not live or work in Australia for more than 183 days.

You do not intend to live or work permanently in Australia.

You have worked XX days, attended a X-day conference and spent a further XX days with friends or doing other activities in Australia prior to returning to your home country on XX/XX/20XX. This is under 100 days spent in Australia.

You do casual work in your home country.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1936 Subsection 6(1)

International Tax Agreements Act 1953

Reasons for decision

Question 1

Under section 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) an amount is assessable income if it is income according to ordinary concepts (ordinary income).

Where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident for taxation purposes, your assessable income includes only income derived from an Australian source.

Tax Treaties

Tax treaties are formal bilateral agreements between two jurisdictions. Australia has tax treaties with more than 40 jurisdictions.

A tax treaty is also referred to as a tax convention or double tax agreement (DTA). They prevent double taxation and fiscal evasion, and foster cooperation between Australia and other international tax authorities by enforcing their respective tax laws.

To prevent double taxation, the Convention Between Australia and the other country for The Avoidance Of Double Taxation With Respect To Taxes On Income And Fringe Benefits And The Prevention Of Fiscal Evasion, explains which country has the right to tax certain income and exempting it in the other state.

In your case, you derived income as a contractor under a contract with the Country Service.

Article 7 of the Convention between Australia and the other country deals with the taxation of business profits derived from the carrying on of a business by an enterprise. Relevantly, in this case:

1.      The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

Article 5 of the Convention deals with what may constitute a 'permanent establishment'. Relevantly, in this case:

1.    For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of the enterprise is wholly or partly carried on.

2.    The term "permanent establishment" includes especially:

a)    a place of management.

b)    a branch.

c)    an office.

d)    a factory.

e)    a workshop.

f)     a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; and

g)    an agricultural, pastoral or forestry property.

Permanent Establishment

A 'permanent establishment' (PE) in relation to a person is described in Subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) as a place at or through which [a] person carries on any business.

Taxation Ruling TR 2002/5 Income Tax: Permanent Establishment - What is 'a place at or through which person carries on any business' in the definition of permanent establishment in subsection 6(1) of the Income Tax Assessment Act 1936? (TR 2002/5) interprets the meaning of Subsection 6(1) of the ITAA 1936.

Paragraph 17 explains that PE is defined in most of Australia's tax treaties to mean, among other things, a fixed place of business through which the business of an enterprise is wholly or partly carried on (or words to similar effect). This is consistent with the primary meaning of PE in the OECD Model Tax Convention on Income and on Capital.

Paragraph 18 explains the general definition of PE outlined in the previous paragraph is detailed in the Commentary on the Permanent Establishment Article (Article 5) of the OECD Model Tax Convention as follows:

• The existence of a "place of business", ie a facility such as premises or, in certain instances, machinery or equipment.
• This place of business must be "fixed", i.e., it must be established at a distinct place with a certain degree of permanence.
• The carrying on of the business of the enterprise through this fixed place of business. This means usually that persons who, in one way or another, are dependent on the enterprise (personnel) conduct the business of the enterprise in the State in which the fixed place is situated.

Concept of Permanence

Guidance on the Commissioner's view that the phrase 'a place at or through which [a] person carries on any business' has as its essence the concept of permanence, is discussed in paragraphs 25 to 35 of TR 2002/5 as follows:

• The term 'permanent establishment' itself connotes permanence.
• The word 'place' denotes something that is not transitory or temporary, ie something that is permanent.
• The requirement that the person carry on a business at or through a place reinforces the idea of permanence in the sense of not being transitory or temporary.
• A place at or through which a person carries on any business in the context of the definition of PE in subsection 6(1) must be geographically permanent.
• Criteria for a place at or through which a person carries on any business to exist for the purposes of the definition of PE in subsection 6(1) is temporal permanence, ie the business presence must not be of a purely temporary nature.
• Whether temporal permanence exists is a matter of fact and degree. However, as a guide, if a business operates at or through a place continuously for six months or more that place will be temporally permanent.
• It is also conceivable that in some limited circumstances, a period of six months or more might not constitute temporal permanence.

Existence of a place of business

Paragraphs 10 to 12 of the OECD Commentary explains that there may be a place of business in the situation where an entity merely has a certain amount of space at their disposal. It is also immaterial whether the premises or facilities are owned or rented by or are otherwise at the disposal of the enterprise. Further, the place of business may be situated in the business facilities of another enterprise. This may be the case, for instance, where the foreign enterprise has at its constant disposal certain premises, or a part thereof owned by the other enterprise.

A certain degree of permanence

Paragraphs 28 to 32 of the OECD Commentary explain that:

• Since the place of business must be fixed, it also follows that a PE can be deemed to exist only if the place of business has a certain degree of permanency, i.e. if it is not of a purely temporary nature. However, this can be difficult to determine.
• A PE may exist where the activities are of a recurrent nature; in such cases, each period of time during which the place is used needs to be considered in combination with the number of times during which that place is used (which may extend over a number of years). For example, the time requirement may be met due to the recurring nature of an activity regardless of the fact that any continuous presence lasts less than six months.
• Where a particular place of business is used for only very short periods of time, but such usage takes place regularly over long periods of time, the place of business should not be considered to be of a purely temporary nature.

Conclusion

You worked at one of the sites of the Country Service. In your case, you carried on your business activities primarily at this site. As such, your place of business was situated in the business facilities of another enterprise and you had a certain amount of space at your disposal to carry out your activities at each site.

Therefore, it is evident that a place of business existed at this site for you to carry on your business activities.

Although you had a place of business at this site, the period at the place of business were for a relevantly short time and usage was not regular over long periods of time. Therefore, it is evident that your place of business at this site was purely temporary in nature.

Consequently, it is considered that you did not have a permanent establishment at this site.

Therefore, the income you derived is not subject to tax in Australia under Article 7 of the Convention.

Question 2

As previously mentioned, income derived from employment and rendering services is included in assessable income. Where you are a foreign resident for taxation purposes, your assessable income includes only income derived from an Australian source.

Further, Article 14 of the Convention deals with income from employment and specifies which country the income will be taxable in. Relevantly, in this case:

1.    Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State 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 therefrom may be taxed in that other State.

2.    Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

a)  the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the year of income of that other State, and

b)  the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, or is borne by or deductible in determining the profits attributable to a permanent establishment which the employer has in the first-mentioned State, and

c)   the remuneration is neither borne by nor deductible in determining the profits attributable to a permanent establishment which the employer has in the other State.

Conclusion

You worked at the place of employment for the recruitment agency from XX/XX/20XX to XX/XX/20XX.

Your income was paid under a contract of employment via a recruitment agency. As your income was derived from employment and services rendered, therefore, ordinary income, as a foreign resident it is assessable in Australia as Australian sourced income.

Further, Article 14 of the Convention allows Australia to tax the income as your employment was carried out in Australia and your remuneration was paid by an employer who was a resident of Australia.