Private ruling: Foreign Income
Published: November 2011
Ruling period: 1 July 2009 to 30 June 2010

Ruling: Question and Answer | Is the income earned from an Australian company, as a non-resident and while living in your home country, assessable in Australia? | No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are a non-resident of Australia. From xx xx to xx xx you were a residing, studying and working in Australia. In xx xx you returned to xx to your family with the intent to live. Between xx xx and xx xx, because you were still on contract with an Australian company, you continued work but online. You submitted you work online and lodged time sheets online. The Australian company deposited your pay directly into your Australian bank account. After 6 months in xx you commenced applying for employment positions in a number of different countries In xx xx you returned to Australia to commence new employment.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(3) | Income Tax Assessment Act 1997 Subsection 6-10(5) Reason for Decision | Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that ordinary income derived by a non-resident directly or indirectly from Australian sources, as well as other ordinary income included by a provision on a basis other than having an Australian source, is assessable. | Statutory income from all Australian sources, or included by a provision on a basis other than having an Australian source, is also included in a non-resident's assessable income under subsection 6-10(5) of the ITAA 1997. | Generally, Australian courts have held that the source of employment income is where the employee performs their duties as in case Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 7 AITR 76; 11 ATD 288). Employment income earned while carrying out duties in Australia is considered to be sourced in Australia. | Employment income earned while being carried out overseas is considered to be sourced in that overseas country, unless it is merely incidental to the performance of the taxpayer's duties in Australia. | 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 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 xx Agreement is listed in section 5 of the Agreements Act. | The xx agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The xx agreement operates to avoid the double taxation of income received by residents of Australia and xx. | Article 4 of the xx agreement advises that salaries, wages and other similar remuneration derived by a resident of xx shall be taxable only in xx unless the employment is exercised in Australia. If the employment is exercised in Australia then the income may also be taxed in xx. | You became a non-resident of Australia in xx xx when you returned home to xx with the intent to permanently reside there and you performed your duties in xx. Therefore, your income is considered to be sourced in xx. | The income you earned while working in xx for an Australian company will not be assessable under section 6-5(3) of the ITAA 1997.

Reasons for decision: Summary: Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that ordinary income derived by a non-resident directly or indirectly from Australian sources, as well as other ordinary income included by a provision on a basis other than having an Australian source, is assessable. Statutory income from all Australian sources, or included by a provision on a basis other than having an Australian source, is also included in a non-resident's assessable income under subsection 6-10(5) of the ITAA 1997. Generally, Australian courts have held that the source of employment income is where the employee performs their duties as in case Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 7 AITR 76; 11 ATD 288). Employment income earned while carrying out duties in Australia is considered to be sourced in Australia. Employment income earned while being carried out overseas is considered to be sourced in that overseas country, unless it is merely incidental to the performance of the taxpayer's duties in Australia. 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 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 xx Agreement is listed in section 5 of the Agreements Act. The xx agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The xx agreement operates to avoid the double taxation of income received by residents of Australia and xx. Article 4 of the xx agreement advises that salaries, wages and other similar remuneration derived by a resident of xx shall be taxable only in xx unless the employment is exercised in Australia. If the employment is exercised in Australia then the income may also be taxed in xx. You became a non-resident of Australia in xx xx when you returned home to xx with the intent to permanently reside there and you performed your duties in xx. Therefore, your income is considered to be sourced in xx. The income you earned while working in xx for an Australian company will not be assessable under section 6-5(3) of the ITAA 1997.

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.