ATO ID 2004/79: Assessability of income earned by a resident of Australia in Kiribati
Date of decision: 28 November 2003
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Is the income earned by an Australian resident taxpayer, while working in Kiribati, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. The income earned by an Australian resident taxpayer, while working in Kiribati, is assessable under subsection 6-5(2) of the ITAA 1997.

Facts
The taxpayer is a resident of Australia for income tax purposes. The taxpayer does contract work in Kiribati as a freelance economist. A fixed base was regularly available to the taxpayer while working in Kiribati. The taxpayer earned in excess of AUD8,000 while working in Kiribati. The taxpayer was in Kiribati in excess of 90 days in the year of income. The taxpayer intends to return to Australia on completion of the project in Kiribati.

Reasons for decision
Summary: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Contract income is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. In determining liability to Australian tax of foreign sourced income received by a 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). Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and ITAA 1997 so that those Acts are read as one. Schedule 34 to the Agreement Act contains the double tax agreement between Australia and the Republic of Kiribati (the Kiribati Agreement). The Kiribati Agreement operates to avoid double taxation of income received by Australian and Kiribati residents. Article 14(1) of the Kiribati Agreement provides that income derived by an individual who is a resident of Australia in respect of professional services or independent activities of a similar character shall be taxable only in Australia unless: Article 14(3) of the Kiribati Agreement states that the term 'professional services' includes services performed in the exercise of independent scientific, literary, artistic, educational or teaching activities as well as in the exercise of the independent activities of physicians, lawyers, engineers, architects, dentist and accountants. Income earned as a freelance economist in Kiribati is considered to be in respect of 'professional services'. A fixed base was regularly available to the taxpayer while working in Kiribati. The taxpayer earned in excess of AUD8,000 while working in Kiribati. The taxpayer was in Kiribati in excess of 90 days in the year of income. All conditions of Article 14(1) of the Kiribati Agreement have been satisfied. Accordingly the income may be taxed in Australia and Kiribati. Article 23(1) of the Kiribati Agreement provides, subject to the provisions of the law in Australia, a credit for any tax paid in Kiribati will be allowed against Australian tax paid on income from Kiribati. Accordingly, the income earned by an Australian resident taxpayer, while working in Kiribati, is assessable under subsection 6-5(2) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 6-5(2)
Subject references: Foreign income Foreign tax credits International tax Kiribati Treaties