Private ruling: Assessability of foreign employment income
Published: May 2014
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Question and answer | Is the employment income you earn in Country X assessable income in Australia? | No.

Relevant facts and circumstances: You are a resident of Australia for Australian tax purposes. You are a resident of Country X for Country X tax purposes. You live and work in Country X. In Country X, you live in accommodation provided to you by your employer. The lease of the property is in your employer's name. The property is available for you and your family's sole use and you have furnished the home yourself. In Australia, you own a rental property and you also rent out your former residence. Both properties are rented through a real estate agent to independent third parties and are not available for your use. You only return to Australia for occasional short holidays.

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

Reasons for decision: Summary: Generally speaking, if you are a resident of Australia for tax purposes your assessable income includes the ordinary income you derived directly or indirectly from all sources during the income year, as stated in section 6-5 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. | Detailed Reasoning - Residence: An article of the double tax agreement deals with residence, and states (in part): 1. For the purposes of this Agreement, a person is a resident of one of the Contracting States: a) in the case of Australia, if the person is a resident of Australia for the purposes of Australian tax; and b) in the case of Country X, if the person is resident in Country X for the purposes of Country X tax. 2. Where by reason of the preceding provisions an individual is a resident of both Contracting States, then his status shall be determined in accordance with the following rules: a) he shall be deemed to be a resident solely of the Contracting State in which he has a permanent home available to him; b) if he has a permanent home available to him in both Contracting States, or if he does not have a permanent home available to him in either of them, he shall be deemed to be a resident solely of the Contracting State in which he has an habitual abode; c) if he has an habitual abode in both Contracting States, or if he does not have an habitual abode in either of them, he shall be deemed to be a resident solely of the Contracting State with which his personal and economic relations are the closer. In your case, as you are a resident for tax purposes of both Australia and Country X, we must determine your residency for the purposes of the double tax agreement. | Detailed Reasoning - Permanent home: In Country X, you live in accommodation provided to you by your employer. The lease of the property is in your employer's name. As your accommodation is provided to you by your employer and is therefore contingent on your employment, it cannot be said that you have a permanent home in Country X. In Australia, you own a rental property and you also rent out your former residence. Both properties are rented through a real estate agent to independent third parties and are not available for your use. As you have no home available for you to live in in Australia, it cannot be said that you have a permanent home in Australia. As you do not have a permanent home in Country X or Australia, we must consider if or where you have an habitual abode. | Detailed Reasoning - Habitual abode: As previously stated, in Country X, you live in accommodation provided to you by your employer. The accommodation is available for you and your family's sole use and you have furnished the home yourself. You live and work in Country X and only return to Australia for occasional short holidays. You do not have a home available to you in Australia. Therefore, your habitual abode is Country X. As your habitual abode is Country X, you are a resident of Country X for the purposes of the double tax agreement. | Detailed Reasoning - Taxation of employment income: Article Y of the double tax agreement deals with personal services, and states (in part): 1. Subject to Articles D, E, F and G, remuneration (other than a pension) derived by an individual who is a resident of one of the Contracting States in respect of personal (including professional) services may be taxed only in that Contracting State unless the services are performed in the other Contracting State. If the services are so performed, such remuneration as is derived in respect thereof may be taxed in that other State. In your case, you are a resident of Country X for the purposes of the double tax agreement and perform your employment activities in Country X. Therefore, the employment income you earn is only taxed in Country X. As your employment income is taxed only in Country X under the double tax agreement, this income is not assessable in Australia and is not required to be included as assessable income in your Australian income tax returns.