Private ruling: Double tax agreement - employment income
Date of advice: 2 May 2024
Published: 11 June 2024
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the employment income you derive from your foreign employer when you exercise your employment in Australia be subject to tax in Australia under Article 14 of the Double Tax Agreement between Australia and Country X (Country X Agreement)? | A1: No.

Relevant facts and circumstances: You are a citizen and a tax resident of Country X. You have an employment contract with Company A, a resident of Country Y. You are going to work temporarily in Australian waters on a visa which allows you to stay in Australia for a maximum period of 6 months from the date you first arrive here. You will work on a foreign flagged vessel owned by Company B and operated by another entity, Company C; both entities are Country X companies. The vessel will come to Australia to work for Company D. Your employer, Company A, does not have a physical business presence in Australia. Company D has a physical business presence in Australia. Your salary will be paid by your employer into your Country X bank account. Australian tax and superannuation will be calculated by your employer and the figure sent to an Australian payroll service provider which will remit the amounts to the Australian Taxation Office. You will not be present in Australia for more than 183 days in any twelve month period commencing or ending in an Australian income year.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5(3) | International Tax Agreements Act 1953

Reasons for decision: Summary: Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you are a foreign resident, your assessable income includes the ordinary income you derived directly or indirectly from all Australian sources during the income year. Ordinary income includes remuneration derived from employment. In determining your liability to pay tax in Australia, it is necessary to consider any applicable double tax agreement. 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 14 of the Country X Agreement deals with employment income and sets out the rules where remuneration is derived by a resident of a Contracting State when exercising their employment in the other Contracting State. 1) Subject to the provisions of Articles 17 and 18 of this Convention, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State. 2) Notwithstanding the provisions of paragraph 1 of this Article, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if: (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year or year of income of that other State; and (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and (c) the remuneration is not deductible in determining taxable profits of a permanent establishment which the employer has in the other State. From the above, Australia has a right to tax the employment income of a Country X resident that is exercised in Australia, unless the person is in Australia for less than 183 days in a specified period and other conditions are met. In your case, you are a Country X tax resident and will not be present in Australia for more than 183 days in any twelve month period commencing or ending in an Australian income year. Further, your remuneration will be paid by your employer, Company A, which does not have a permanent establishment in Australia. Therefore, the remuneration you derive when you exercise your employment in Australia will not be subject to tax in Australia.