ATO ID 2003/438: Assessability of salary and wages paid to a Netherlands scientific researcher for research in Australia
Date of decision: 13 May 2003
Year of income: Year ending 30 June 2003
Business line: Public Groups and International

Issue
Are the salary and wages received by the taxpayer, a Netherlands scientific researcher, on a three month research contract with an Australian university, assessable income under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. The salary and wages of the taxpayer, a Netherlands scientific researcher, on a three month research contract with an Australian university will be assessable income under subsection 6-5(3) of the ITAA 1997.

Facts
The taxpayer is resident of Netherlands, and is a non-resident of Australia for income tax purposes. The taxpayer holds a doctorate degree, and immediately prior to arriving in Australia was employed as a scientific researcher at a research centre in Amsterdam. The taxpayer is conducting research for an Australian university on a three month employment contract. The taxpayer receives salary and wages from the Australian university. The university is a resident of Australia.

Reasons for decision
Summary: Subsection 6-5(3) of the ITAA 1997 provides (among other things) that a non-resident taxpayer's assessable income includes the ordinary income derived from Australian sources. Salary and wages falls under the ordinary concept of income under section 6-5 of the ITAA 1997. Generally, the source of salary and wages is where the service is performed (Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 11 ATD 288; (1957) 7 AITR 76, and FC of T v. Efstathakis 79 ATC 4256; (1979) 9 ATR 867). In the taxpayer's case, this service is performed in Australia, at the Australian university - which gives the salary and wages an Australian source. The taxpayer is a resident of the Netherlands, a country with which Australia has entered into a double tax agreement. Therefore, the double tax agreement between Australia and the Kingdom of the Netherlands and the protocols to that agreement (the Netherlands Agreement) contained in Schedules 10 and 10A of the International Tax Agreements Act 1953 (the Agreements Act) must be considered in determining whether the salary and wages paid to the taxpayer is taxable in Australia. Sections 11A and 11AA of the Agreements Act give the Netherlands Agreement the force of law in Australia. Subsection 4(1) of the Agreements Act provides that the Income Tax Assessment Act 1936 and ITAA 1997 must be read as one with the Agreements Act. Article 15 of the Netherlands Agreement provides, subject to Articles not presently relevant, that salary and wages derived by a Netherlands resident in respect of employment performed in Australia may be taxed in Australia unless all of the following conditions exist: As the taxpayer's remuneration is paid for by an Australian resident (and not a Netherlands resident), the taxpayer does not satisfy the second condition of Article 15(2)(b) of the Netherlands Agreement. Accordingly the remuneration received from the Australian university may be taxed in Australia under Article 15(1) of the Netherlands Agreement. Item 1 of the Protocol to the Netherlands Agreement provides that where a Netherlands resident derives income under Article 15, it shall be deemed for the purposes of the income tax law of Australia to have a source in Australia. Accordingly, the taxpayer's remuneration received from the Australian university will be assessable under subsection 6-5(3) of the ITAA 1997, as the taxpayer is a non-resident for income tax purposes, with Australian sourced income.

Legislative references: Income Tax Assessment Act 1936 The Act
Case references: Federal Commissioner of Taxation v. French (1957) 98 CLR 398 (1957) 11 ATD 288 (1957) 7 AITR 76
Subject references: Double tax agreements International tax Netherlands Salary & wages income School teachers