Private ruling: Assessability of income derived by a non-resident
Published: April 2014
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 July 2010

Ruling: Question and answer | Is the income you earned in Australia assessable income in Australia? | No.

Relevant facts and circumstances: You are a resident of Country X for taxation purposes. You undertook contract work in Australia several weeks in several different locations. This work was conducted by you as a contractor. You were not an employee.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(3). | International Tax Agreements Act 1953 Section 4. | International Tax Agreements Act 1953 Section 5.

Reasons for decision: Summary: Generally speaking, 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, as stated in subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997). However, 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 Country X Agreement is listed in section 5 of the Agreements Act. The Country X agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country X agreement operates to avoid the double taxation of income received by residents of Australia and Country X. An article of the Country X agreement defines business as including "the performance of professional services and of other activities of an independent character". The Country X agreement defines permanent establishment as "a fixed place of business through which the business of the enterprise is wholly or partly carried on". In regards to business profits, the Country X agreement states: The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment. In your case, you are a resident of Country X. You worked in Australia for short periods of time in several different locations and you were not an employee. Therefore, your services fall within the definition of 'business'. As you worked for short periods in different locations, you did not have a 'permanent establishment' in Australia. Therefore, under the Country X agreement, your income is only taxable in Country X as you were not carrying on your professional services through a permanent establishment in Australia. The income you earned while working in Australia is therefore not assessable income in Australia.