Private ruling: Double tax agreement and the assessability of salary
Published: October 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Is your salary taxable in Australia? | A1: No.

Relevant facts and circumstances: You are a dual citizen of Country X and Australia. You are a resident of Australia. You are employed by the Country X Ministry of Foreign Affairs at the Country X Embassy in Australia. The Country X Ministry of Foreign Affairs states in its employment guide that locally engaged staff are not to be considered public servants but employees of the local private sector.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2).

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 during the income year. The double tax agreement (DTA) between Australia and Country X operates to avoid the double taxation of income. Where the DTA and the Australian tax legislation are inconsistent, the DTA overrides the Australian tax legislation. According to Article 14 of the DTA, remuneration derived by an individual who is a resident of Australia in respect of an employment shall be taxable only in Australia unless the employment is exercised in Country X. However, Article 14 of the DTA is subject to Article 18 of the DTA, which relates to government service. According to Article 18 of the DTA, salary and wages paid by Country X to citizens of Country X in respect of services rendered to Country X, shall only be taxable in Country X, even if the services are rendered in Australia. In your case, you are a citizen of both Country X and Australia. You are employed by the Country X Ministry of Foreign Affairs. You are rendering services in Australia at the Country X Embassy and you are being paid for your services by the Country X Ministry of Foreign Affairs. Therefore, in accordance with Article 18 of the DTA, the salary you earn in respect of these services is not taxable in Australia. The fact that the Country X Ministry of Foreign Affairs states in its employment guide that locally engaged staff are not to be considered public servants but employees of the local private sector, does not change this, as you are still rendering services to, and being paid by, the Country X Ministry of Foreign Affairs.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.