ATO ID 2003/372: Assessability of consultancy fees received by a Canadian expert for services provided to a government authority in Australia
Date of decision: 5 May 2003
Year of income: Year ending 30 June 2003 Year ending 30 June 2004 Year ending 30 June 2005
Business line: Public Groups and International

Issue
Are the consultancy fees received by a taxpayer, an expert from Canada in a discipline of science, for professional services provided in Australia to an Australian government authority assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. Even though the consultancy fees received by a taxpayer, an expert from Canada in a discipline of science, for professional services provided in Australia to an Australian government authority would be assessable under subsection 6-5(3) of the ITAA 1997, Article 14 of Schedule 3 to the International Tax Agreements Act 1953 (the Agreements Act) applies and the consultancy fees are not taxable in Australia.

Facts
The taxpayer is a resident of Canada and a non resident of Australia for income tax purposes. The taxpayer is an expert in a discipline of science. The taxpayer enters into two separate contracts to provide consultancy services in the area of their expertise to a government authority in Australia. Under the terms of the contracts, the taxpayer is required, within a short timeframe, to conduct and review research on a number of issues with maps and diagrams and prepare reports. While present in Australia, the taxpayer spends most of their time on fieldwork. The taxpayer keeps no fixed base in Australia to perform the terms of the two contracts. The taxpayer receives consultancy fees from the government authority pursuant to the terms of the contracts.

Reasons for decision
Summary: Subsection 6-5(3) of the 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 and other ordinary income that a provision includes as assessable income on some basis other than having an Australian source. In determining liability to Australian tax on income received by a non-resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the Agreements Act. Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that both Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except for some limited situations). Schedule 3 to the Agreements Act contains the convention between Australia and Canada (the Canadian Convention). Schedule 3A of the Agreements Act contains the protocol amending the Canadian Convention (the Canadian Protocol). The Canadian Convention and Canadian Protocol operate to avoid the double taxation of income received by Australian and Canadian residents. Paragraph (1) of Article 14 of the Canadian Convention provides that income derived by an individual who is a resident of Canada in respect of professional services or other independent activities of a similar character will be taxable only in Canada unless a fixed base is regularly available to that individual in Australia for the purpose of performing the activities. If the individual has such a fixed base in Australia, the income attributable to activities exercised from that fixed base may be taxed in Australia. Paragraph (2) of Article 14 of the Canadian Convention defines 'professional services' to include services performed in the exercise of independent scientific activities. The consultancy fees received by the taxpayer from an Australian government authority are in respect of 'professional services' under paragraph (2) of Article 14 of the Canadian Convention. Consequently, as the taxpayer is a resident of Canada with no fixed base regularly available in Australia for the purpose of performing the professional services activities, Article 14 of the Canadian Convention applies and the consultancy fees are not taxable in Australia. The consultancy fees received by the taxpayer from the Australian government authority will therefore not be assessable under subsection 6-5(3) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 6-5(3)
Subject references: Canada Double tax agreements Exempt income International tax Residence of individuals