Private ruling: Assessable income
Date of advice: 27 November 2024
Published: 13 January 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the income you derive from your employment as a professional in Country Z assessable in Australia? | A1: No. | Q2: Is the income you will derive from your employment in Country Z with occasional international duties assessable in Australia? | A2: No.

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. You are employed by Employer Z whose head office is in Country Z. The airline is an international cargo carrier that provides airport-to-airport air transportation of heavy freight cargo. You are a full-time employee of the airline. You have a visa which your employer applies to renew every couple of years on your behalf. Your current visa is valid until a future year. Due to the nature of Employer Z operations most of your flights are to international destinations. You are based in Country Z. You pay income tax on the income earned from Employer Z in Country Z. Your employer complies with all relevant local taxation obligations. You worked for Employer Z for a number of days in the relevant financial year.

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

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, in determining liability to tax on the foreign source income of an Australian resident, it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreement. 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 Z Agreement is listed in the Agreements Act. The Country Z Agreement operates to avoid the double taxation of income received by residents of Australia and Country Z. Paragraph 1 of Article 15 of the Country Z agreement provides that salaries and wages derived by an Australian resident individual in respect of employment carried out in Country Z may be taxed in both Australia and Country Z. Paragraph 2 of Article 15 contains an exception to paragraph 1 which may give sole taxing rights to Australia if employment is carried out in Country Z for periods not exceeding 183 days in a 12 month period; however, this is not relevant in your situation. Notwithstanding the above paragraphs, paragraph 3 of Article 15 provides Country Z with sole taxing rights on remuneration derived in respect of an employment exercised aboard a ship or aircraft operated by an enterprise of The USA in international traffic. Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements states that it has been accepted by the courts that the OECD Model Tax Convention and Commentaries provides appropriate guidance when interpreting the terms used in double tax agreements. Paragraph 5 of the Commentary on Article 3 of the OECD Model Tax Convention on Income and on Capital (2017) states that the definition of the term 'international traffic' is based on the principle set forth in paragraph 1 of Article 8 that the right to tax profits of an enterprise of a contracting state from the operation of ships or aircraft in international traffic resides only in that state in view of the special nature of the international traffic business. The Commentary on Article 3 explains further that voyages carried out by an enterprise of a contracting state that include a domestic leg in that state, or are fully domestic within that state, will also be operated in international traffic: 6. The definition of the term "international traffic" is broader than is normally understood. The broader definition is intended to preserve for the State of the enterprise the right to tax purely domestic traffic as well as international traffic between third States, and to allow the other Contracting State to tax traffic solely within its borders............. 6.2 A ship or aircraft is operated solely between places in a State in relation to a particular voyage if the place of departure and the place of arrival of the ship or aircraft are both in that State. However, the definition applies where the journey of a ship or aircraft between places in a state forms part of a longer voyage of that ship or aircraft involving a place of departure or a place of arrival which is outside that State. For example, where, as part of the same voyage, an aircraft first flies between a place in one Contracting State to a place in the other Contracting State and then continues to another destination also located in that other Contracting State, the first and second legs of that trip will both be part of a voyage regarded as falling within the definition of "international traffic". In your case, Article 15 will apply so that the employment income you derive from Employer Z will not be assessable in Australia.