Private ruling: Assessability of income
Date of advice: 1 June 2019
Published: July 2019
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX19

Ruling: Q1: Is the income you are earning from an Australian State Government Department whilst a resident of Country X assessable in Australia? | A1: No

Relevant facts and circumstances: You are an Australian citizen and you, your wife and children live permanently in Country X. You are a citizen of Country X. Your spouse was born in Country X and you moved there to be closer to their family. You worked for a country X Government Department for a number of years before spending time back in Australia consulting for an Australian State Government Department through a labour-hire firm. You and your spouse were residents of Australia for tax purposes during this period and paid tax in Australia accordingly. You and your spouse returned home to Country X where you continued to consult remotely for the Australian State Government Department. The labour-hire firm you worked for at the time understood that as a resident of Country X and performing your duties physically in Country X, you were no longer subject to taxation in Australia and thus stopped withholding tax. You subsequently provided them with evidence of declaration of that income in Country X. You are now employed directly by the Australian State Government Department, whom have requested you obtain a private binding ruling. You have just accepted a new role with the Australian State Government Department who are based in Australia. All of the work you will do for them will be executed within your home in Country X. You will be paid into an Australian bank account that is registered in your name. You will then transfer money to Country X. You own an investment property in Australia. Your parents and siblings reside in Australia. You, your spouse and your children visit Australia annually. Your children are all Australian citizens; two of them were born in Australia. You lodge a tax return annually in Australia for the purpose of reporting revenue on your rental property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(3) | International Tax Agreements Act 1953 section 4 | International Tax Agreements Act 1953 section 5

Reasons for decision: Summary: Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) explains that ordinary income derived by a non-resident directly or indirectly from Australian sources is assessable in Australia. Salary and wages are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997. Generally, 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 your duties in Australia. This has been reinforced by Australian courts who have held that the source of employment income is where the employee performs their duties ( C of T (NSW) v. Cam and Sons Ltd (1936) 36 SR (NSW) 544; 4 ATD 32 and FC of T v. French (1957) 98 CLR 398; (1957) 7 AITR 76; 11 ATD 288). In determining the liability to tax on Australian sourced income received by a non-resident, it is necessary to consider not only the Australian 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 overrules 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 Convention between Australia and Country X for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (Country X Convention) is listed in section 5 of the Agreements Act. An Article of the Country X Convention states, in effect, that remuneration, other than a pension or annuity, in respect of services rendered to a government (including a political subdivision or local authority) of Australia will be taxed only by Australia. There is an exception where the remuneration is paid in respect of services rendered in Country X and the recipient is, in broad terms, a citizen of, or ordinarily resident in Country X. In that case the remuneration will be taxed only by Country X. You are a citizen of Country X. Prior to becoming a citizen you had been a permanent resident for several years. Your spouse was born in Country X and you moved there to be closer to the family. You worked for a Country X Government Department for a number of years before spending time back in Australia consulting for an Australian State Government Department through a labour-hire firm. You and your spouse returned home to Country X where you continued to consult remotely for the Australian State Government Department. The labour-hire firm you worked for at the time understood that as a resident of Country X and performing your duties physically in Country X, you were no longer subject to taxation in Australia and thus stopped withholding tax. You have just accepted a new role where you will be employed directly by the Australian State Government Department who are based in Australia. | Detailed Reasoning - Conclusion: In accordance with the Country X Convention as you are a citizen of Country X and you had been a permanent resident of Country X before accepting the new role working directly with the Australian State Government, your income earned from that role will not be assessable in Australia.