Private ruling: Foreign employment income
Published: December 2014
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 1 January 2019
Date scheme commenced: 1 January 2015

Ruling: Question and Answer | Is the income you will derive from your employment as a pilot in the foreign country assessable in Australia? | No.

Relevant facts and circumstances: You are contemplating accepting a contract of employment to work for a company in the foreign country. The contract will be for several years. Your employment will initially be based in the foreign country but your employer anticipates that they will be to offer you work within Australia once you have completed all the training requirements. You will be flying on international routes. You will not be relocating your family to a foreign country or anticipating moving from your residence in Australia, whether your job will be in a foreign country or within Australia. You will be tax in a foreign country on the employment income, even if your employment involves work in Australia.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | International Tax Agreements Act 1953 Section 5 | Income Tax Assessment Act 1936

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (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. In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The foreign country Agreement is listed in section 5 of the Agreements Act. The foreign country Agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The foreign country Agreement operates to avoid the double taxation of income received by residents of Australia and a foreign country. The foreign country Agreement states at Article 15, paragraph 3: Notwithstanding the provisions of paragraphs (1) and (2), remuneration derived in respect of an employment exercise aboard a ship or aircraft operated by an enterprise of a Contracting State in international traffic, shall be taxable only in the Contracting State of which the enterprise is a resident. In your case, as your employment will be exercised for an enterprise based in the foreign country which will involve international flights between the foreign country and Australia, the income will be taxable only in the foreign country and will not, therefore, be assessable in Australia under section Subsection 6(2) of the ITAA 1997.