Private ruling: foreign employment income
Published: April 2012
Ruling period: Year ending 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a foreign income tax offset for the tax to be paid in the foreign country on your employment income from services performed in Australia? | A1: No.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You have been living in Australia for a number of years after obtaining permanent residency. You remain a citizen of the foreign country. You will be employed by the foreign company located in the foreign country to perform services in Australia. You will be the sole employee in Australia.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 770-10(1) | Income Tax Assessment Act 1997 subsection 770-15(1) | International Tax Agreements Act 1953 section 3AAA | International Tax Agreements Act 1953 section 4

Reasons for decision: Summary: You will not be entitled to a foreign tax offset for the tax to be paid in the foreign country on your employment income from services performed in Australia. | Detailed Reasoning - Detailed reasoning: Subsection 770-10(1) of the ITAA 1997 provides that a taxpayer is entitled to a foreign income tax offset for foreign income tax the taxpayer paid on an amount included in assessable income. Subsection 770-15(1) of the ITAA 1997 defines 'foreign income tax' to include a tax on income that is imposed by a law other than an Australian law. A note to subsection 770-15(1) of the ITAA 1997 points out that 'foreign income tax' includes only that which has been correctly imposed under the foreign law, and where the foreign jurisdiction has a tax treaty with Australia, foreign income tax includes only tax which has been correctly imposed under the treaty. An article of the foreign country Agreement provides that employment income shall be taxable in the country of residence unless the services are performed in the other country. The taxpayer is an Australian resident for tax purposes. The employment services will be exercised in Australia. Therefore the employment income is only taxed in Australia as Australia has the exclusive taxing right. For the foreign country to tax that employment income will be contrary to the tax treaty. An article of the foreign country Agreement provides that an Australian resident shall be entitled to a credit for the foreign country tax paid in accordance with the agreement, whether directly or by deduction, in respect of income derived by that person from sources in the foreign country. An article will not apply as the income will be derived by the taxpayer from sources in Australia and the foreign country Agreement gives Australia the sole taxing right. If the foreign country taxes the employment income, the tax will not be foreign income tax as defined in subsection 770-15(1) of the ITAA 1997. Therefore you will not be entitled to a foreign tax offset. Note: Should the foreign country tax the employment income, you should contact the foreign country tax authorities to claim back the tax paid.

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.