Private ruling: International income
Date of advice: 5 October 2018
Published: November 2018
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20ZZ
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the income you will derive from your employment as a pilot in Country A flying on international flights assessable in Australia? | A1: No | Q2: Is the income you will derive from your employment as a pilot in Country A flying on domestic flights assessable in Australia? | A2: Yes | Q3: Is the income you will derive from your employment while training to be a pilot in Country A flying on domestic flights assessable in Australia? | A3: Yes

Relevant facts and circumstances: You are an Australian resident for tax purposes. You have accepted employment with an airline based in Country A, as a pilot. This airline is not an Australian tax resident and does not have a permanent establishment in Australia. Your contract is for four years. Your aircraft training, all recurrent simulations, flight checks, medical health checks and all other employment related requirements are conducted in Country A to conform to that nation’s regulations. Hence your period of training was conducted on domestic flights in Country A. Your employment will be based in Country A where you will be required to fly domestic and international flights from and to Country A. Your remuneration will be subject to taxation in Country A as your employer complies with the relevant local taxation obligations.

Relevant legislative provisions: Income Tax Assessment Act 1936 ; | Income Tax Assessment Act 1997 subsection 6-5(2); | International Tax Agreements Act 1953 sections 4 and 5; and Agreement between the Government of Australia and the Government of Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income

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 Agreement between the Government of Australia and the Government of Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income is listed in the Agreements Act. The Country A Agreement operates to avoid the double taxation of income received by residents of Australia and Country A. The Agreement operates to avoid the double taxation of income received by residents of Australia and Country A. Paragraph 1 of Article X of the agreement provides that salaries, wages and other similar remuneration derived by an individual who is a resident of Australia in respect of employment may be taxed in both countries. Paragraph 2 of Article X specifies that in certain circumstances employment income is only taxable in Australia. Because your period in Country A is greater than 183 days and your employer is a resident of Country A, this article does not apply. Paragraph 3 of Article X gives Country A sole taxation rights on remuneration derived in respect of an employment exercise aboard an aircraft operated by an enterprise of Country A in international traffic. Conclusion ● Remuneration derived during the period you were training in Country A is assessable in Australia as ordinary income. ● Remuneration derived in respect of domestic flights within Country A is assessable in Australia as ordinary income. ● Remuneration derived in respect of international flights is exempt from tax in Australia. This would include any domestic flights which are part of an international route where the domestic flight is an integral part of the international flight.