Edited version of private advice

Authorisation Number: 1052378962560

Date of advice: 15 April 2025

Ruling

Subject: Double Taxation Agreements

Question 1

Will income you earn from employment with the University A for work you exercise from Australia be assessable in Australia under article 15 of the Double Tax Agreement (DTA) between Australia and Country B?

Answer 1

Yes.

This ruling applies for the following period:

Year ending XX XXX 20XX.

The scheme commenced on:

XX XXX 20XX.

Relevant facts and circumstances

You live in Country B and are a citizen of that country.

You are currently employed by University B.

You were offered a fixed term part-time position as a Position A with University A in Australia. The offer was made on XX XXX 20XX.

The position commenced on XX XXX 20XX and terminates on XX XXX 20XX.

The role is a research only one, working in Department A at University A.

The role is part time, at 0.X full time equivalency (FTE).

You are employed under the classification of classification A.

Your employment conditions are covered by University A's enterprise bargain agreement.

Your fixed term part time employment is at 0.X FTE which is equalised across the years of your employment, with specific hours of work to be agreed on an annual basis.

You are required to work X-X weeks per year at the campus A of University A and for the remainder of the year, work remotely from your home in Country B.

The pro rata portion of your annual remuneration for your position with University A will be equalised over the year such that you will receive regular fortnightly payments.

University A will make superannuation contributions on your behalf, and you have an open and active member account with Super Fund A for this purpose.

You are entitled to leave as set out in the Enterprise Agreement.

During the 0.XFTE working period you are expected to perform duties to meet your accountabilities set out in your position description.

For the remaining periods of each year of your Fractional Working Agreement you will not be required to perform work for University A.

Your duties under the terms of employment with University A are:

•                     Contribute to the intellectual climate and research environment of the Department A

•                     Publish on average at least X scholarly papers over a X-year period with a University A by-line

•                     Joint supervision of X new PhD student

•                     Submit X high quality ARC grant application

•                     Actively mentor staff and help build industry engagement capacity

•                     Assume a leading role in at least one industry engagement per year

•                     Work with staff online outside of the on-campus visits

•                     You will be listed as part of the faculty

•                     Attend the campus in person for X-X weeks per year.

In the 20XX-XX income year you were in Australia, working on campus, from XX XXX 20XX to XX XXX 20XX.

In the 20XX-XX income year you are expecting to be in Australia for X weeks over XXX and XXX 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

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

Income Tax Assessment Act 1997 subsection 6-5(4)

Income Tax Assessment Act 1997 section 770-10(3)

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

International Tax Agreements Act 1953

Reasons for decision

You are not a resident of Australia for tax purposes. As a non-resident of Australia, your assessable income includes only income from an Australian source.

The relevant parts of section 6-5 of the ITAA 1997 state:

(1)           Your assessable income includes income according to ordinary concepts, which is called ordinary income.

...

(3)           If you are a foreign resident, your assessable income includes:

(a)           the ordinary income you derived directly or indirectly from all Australian sources during the income year; and

(b)           other ordinary income that a provision includes in your assessable income for the income year on some basis other than having an Australian source.

In Nathan v. Federal Commissioner of Taxation 25 CLR 183 at 189 190 it was recognised that the ascertainment of the actual source of a given income is a practical, hard matter of fact.

As stated by Bowen J in Federal Commissioner of Taxation v. Efstathakis (1979) 9 ATR 867; 79 ATC 4256 (the Eftstathakis Case) at ATR 870; ATC 4259, to determine source:

... the answer is not to be found in the cases, but the weighing of the relative importance of the various factors which the cases have shown to be relevant.

In the Cam, French and Efstathakis cases it was held that the source of the income was where the taxpayer performed the services:

Commissioner of Taxation v Cam & Sons Ltd (1936) 36 SR (NSW) 544 (the Cam Case) - concerned wages paid to seamen employed to work on trawlers. They were engaged and paid in New South Wales, but most of their services were provided outside state territorial waters. Jordan CJ, with whom Street and Bavin JJ agreed in the Cam Case at 548, held that:

Where income is derived from wages or salary, again the source has several factors. Personal exertion may be involved in negotiating and obtaining the contract of employment, in performing the stipulated services, and obtaining payment for them.... [I]n the ordinary case of the employment of a seaman... where there is nothing special, either in the circumstances of the contract of employment or in the payment, and where the work is both done and paid for in the ordinary course, the all-important factor is the doing of the work; and the contract of employment and the payment are relatively insignificant and formal elements. But this is not necessarily the case with respect to all wages or salary. In the case of an appointment to a sinecure, the engagement and the payment may be the only significant factors. Accordingly, the wages had to be apportioned based on 'working time in and out of New South Wales territorial waters.

Federal Commissioner of Taxation v French (1957) 98 CLR 398 (the French Case) - the taxpayer was employed as an engineer by the Australian company CSR which carried on business in New South Wales and, relevantly, New Zealand. Each year, the taxpayer spent two or three weeks in New Zealand as inspecting engineer for the company in its New Zealand business. At all other times, the taxpayer performed services for the company in New South Wales. A majority of the High Court held that the wages paid in respect of the period in New Zealand were sourced in New Zealand, because this is where the services were performed, this being the most important factor in Mr French's situation (see French Case at 411, 417 and 422).

However, the Court also made comments to the effect that this decision did not necessarily determine what would be most important in every personal services contract. For example, Dixon CJ in the French Case at 405 in relation to a director and at 406 in relation to an accountant procured to achieve a specified result, and Kitto J at 417-418 refers to a situation where remuneration was payable regardless of service, and to a person who worked sometimes overseas who was paid while on sick leave, and to where a period of overseas service might in substance be merely incidental to Australian service.

In the Efstathakis Case - the taxpayer was a Greek National resident in Australia who was employed by the Greek Government as a secretary/typist in the Greek embassy. She had applied for the job in Greece, and the post had been gazetted there. She performed the services in Australia. Her net pay was compiled in Greece, a cheque was drawn on a bank in Greece and then received in Australia. A condition of her employment was that she could be posted anywhere in the world, but she would probably have resigned, as she had put down roots in Sydney, having child there, buying a unit, and marrying a naturalised Greek Australian.

Bowen CJ, with whom Brennan and Deane JJ agreed, held that the wages paid to the taxpayer had an Australian source. His Honour considered the above factors but gave most weight to 'the residence of the taxpayer in Australia and the facts that the services were performed and payment received [in Australia]. The payment of remuneration depended upon actual performance of the services (the Etfatathakis case at ATR 871;ATC at 4260).

As mentioned above, in the Cam, French and Efstathakis cases it was held that the source of the income was where the taxpayer performed the services. In those cases the place where the taxpayer was located was the same as where the taxpayer did the work, where it was given effect to and where the outcome of the work occurred.

In determining your liability to pay tax in Australia it is also necessary to consider any applicable double tax agreements. Sections 4 and 5 of the International Tax Agreements Act 1953 (Agreements Act) incorporate that Act with the ITAA 1936 and the ITAA 1997 and provide that the provisions of a double tax agreement have the force of law.

Article 15 of the DTA between Australia and Country B deals with employment income. At 9 (1) it states:

(1) Subject to the provisions of Articles 18 and 19, 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 or in respect of services performed as a director of a company shall only be taxable in that State unless the employment is exercised or the services performed in the other Contracting State. If the employment is so exercised or the services so performed, such remuneration as is derived from the exercise or performance may be taxed in that other State.

Taxation Ruling TR 2001/13 discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 provides that the Organisation for Economic Co-operation and development (OECD) Model Tax Convention and Commentary will often need to be considered in interpreting double tax agreements

The OECD Commentary on Article 15 details that where employment is exercised is a factor for consideration. Paragraph 1 states:

...establishes the general rule as to the taxation of income from employment (other than pensions), namely, that such income is taxable in the State where the employment is actually exercised. The issue of whether or not services are provided in the exercise of an employment may sometimes give rise to difficulties which are discussed in paragraphs 8.1ff. Employment is exercised in the place where the employee is physically present when preforming the activities for which the employment income is paid.

In respect of leave entitlements and allowances, the OECD Commentary goes on to provide that:

2.2 The condition provided by the Article for taxation by the State of source is that the salaries, wages or other similar remuneration be derived from the exercise of employment in that State. This applies regardless of when that income may be paid to, credited to or otherwise definitively acquired by the employee.

2.5 A payment made with respect to unused holidays/sick days that accrued during the last year of employment is remuneration for the period of work that generated the holiday or sick leave entitlement.

Application to your circumstances

In your situation you are employed by an entity of Australia, University A. Your employment services are carried out both in Australia and in Country B. As noted in the cases of Cam, French and Efstathakis, the source of income is where the employee preforms the service. In those cases, the place where the taxpayer was located was the same as where the taxpayer did the work, where it was given effect to and where the outcome of the work occurred.

Therefore, the income you earned from University A does have an Australian source.

Your employment is part time, at 0.XFTE. Your remuneration for this is apportioned across the year, resulting in equal fortnightly payments. Your position is a salaried one and you are not paid at an hourly rate.

Those fortnightly payments of salary made to you while you are in Australia are made for employment that is exercised in Australia and will be assessable income in Australia.

Similarly, any leave entitlements or allowances proportionally accrued for the time spent in Australia, will be assessable income in Australia when taken or utilised. Those entitlements are themselves, remuneration for work that was exercised in Australia.

Those fortnightly payments made to you while in Country B, and any leave entitlements and allowances accrued while in Country B, will not be assessable income in Australia.