ATO ID 2004/85: Assessability of income received by a New Zealand resident working in Australia
Date of decision: 9 January 2004
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Are the salary and wages received by a taxpayer who is a resident of New Zealand while working in Australia assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. The salary and wages received by a taxpayer who is a resident of New Zealand while working in Australia are not assessable under subsection 6-5(2) of the ITAA 1997 as they are assessable under subsection 6-5(3) of the ITAA 1997.

Facts
The taxpayer is a citizen of New Zealand. The taxpayer is single with no spouse or dependants. The taxpayer has other family members who reside in New Zealand. The taxpayer was employed in Australia, by an Australian resident employer, for a period of two months. The taxpayer then returned to New Zealand when their employment ceased. The taxpayer had a pre-arranged work contract before entering Australia. The taxpayer was employed in a full-time position. The taxpayer was allocated a residence to live in. It came fully furnished with a fully functioning kitchen, bathroom and laundry. The taxpayer did not intend to reside in Australia permanently nor did they have any immediate intention to return to Australia to continue work. The taxpayer maintained an Australian bank account but had no other assets of a personal nature. The taxpayer did not maintain a permanent place of abode in New Zealand. The taxpayer had no other assets in New Zealand other than a bank account where interest received was minimal.

Reasons for decision
Summary: Subsection 6-5(2) of the ITAA 1997 states that the assessable income of an Australian resident taxpayer includes all income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) contains the definition of 'resident' which states that a person may be a resident of Australia where: Taxation Ruling TR 98/17 provides the Commissioner's interpretation on the residency status of individuals entering Australia. Generally the Commissioner regards six months or 183 days as a considerable time when deciding an individual's behaviour is consistent with residing here. The Commissioner is also of the view is that the period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an individuals behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here. The following factors are useful in describing the quality and character of an individuals behaviour: The purpose for the taxpayer being in Australia was to take up a pre-arranged work agreement. Whilst the taxpayer's behaviour and living arrangements were consistent with those of a resident, the taxpayer did not intend to live here nor did they intend to return in the immediate future. The taxpayer completed two months of work and returned to New Zealand. The Commissioners view is that an individual staying for a short period for work purposes is normally insufficient to establish that an individual is a resident. As such, we do not regard the taxpayer to be an Australian resident for tax purposes. Therefore, wages received by the taxpayer will not be assessable under subsection 6-5(2) of the ITAA 1997. Subsection 6-5(3) of the ITAA 1997 states that if an individual is not an Australian resident, their assessable income includes all income derived directly or indirectly from all Australian sources during the income year. Salary and wages are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997. In determining liability to tax on Australian sourced 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 International Tax Agreements Act 1953 (the Agreements Act). Schedule 4 to the Agreements Act contains the double tax agreement between Australia and New Zealand (the NZ Convention). The NZ Convention operates to avoid the double taxation of income received by Australian and New Zealand residents. Article 14(1) of the NZ Convention provides that salary and wages and other similar remuneration derived by an individual who is a resident of New Zealand in respect of employment will be taxable only in New Zealand unless the employment is exercised in Australia. If the employment is exercised in Australia, the remuneration may be taxed in Australia. However, Article 14(2) of the NZ Convention provides that remuneration derived by a New Zealand resident individual taxpayer in respect of an employment exercised in Australia will be taxable only in New Zealand if: This means that as the taxpayer's employment was exercised in Australia, the taxpayer may also be taxed in Australia. Article 14(2) of the NZ Convention will not apply to limit taxation to New Zealand only as the taxpayer's remuneration is paid by an Australian resident employer. Accordingly, the income is included in your assessable income under subsection 6-5(3) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1936 subsection 6(1)
Related public rulings and determinations: Taxation Ruling TR 98/17
Subject references: Income International tax New Zealand Resident/residency Treaties