Issue
Is the Australian sourced employment income received by a resident of the United Kingdom (UK) assessable income under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) where they are present in Australia for a period not exceeding 183 days.
Decision
Yes. The Australian sourced employment income received by a resident of the UK is assessable income under subsection 6-5(3) of the ITAA 1997 where they are present in Australia for a period not exceeding 183 days as their employer is an Australia resident.
Facts
The taxpayer is a resident of the UK and a non resident of Australia for taxation purposes.
The taxpayer is present in Australia for a period not exceeding 183 days in the Australian income year.
The taxpayer is employed in Australia and receives salary and wage income. Their employer is an Australian resident.
Reasons for Decision
Subsection 6-5(3) of the ITAA 1997 provides that ordinary income derived by a non resident directly or indirectly from Australian sources, as well as other ordinary income included by a provision on a basis other than having an Australian source, is assessable.
The salary and wages received by the taxpayer are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.
In determining liability to tax on Australian sourced income received by a non resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).
Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except for some limited provisions).
Schedule 1 to the Agreements Act contains the double tax agreement between Australia and the UK (the UK Agreement). The UK Agreement operates to avoid the double taxation of income received by Australian and UK residents.
Article 12 of the UK Agreement deals with dependant personal services. Paragraph (1) of Article 12 of the UK Agreement provides that salary and wages derived by a resident of the UK shall be taxable only in the UK unless the employment is exercised in Australia. If the employment is exercised in Australia then the income may also be taxed in Australia.
Paragraph (2) of Article 12 of the UK Agreement provides that the income will be exempt from tax in Australia if: • the taxpayer is present in Australia for a period or periods not exceeding in the aggregate 183 days in the Australian year of income; and • the remuneration is paid by or on behalf of an employer who is not a resident of Australia; and • the remuneration is not deductible in determining the profits of a permanent establishment or a fixed base which the employer has in Australia.
Although the taxpayer was present in Australia for a period not exceeding 183 days as their salary and wages were paid by an Australian resident employer. The exemption under paragraph (2) of Article 12 of the UK Agreement will therefore not apply.
Accordingly, the taxpayer will be assessable under subsection 6-5(3) of the ITAA 1997 on the salary and wages received from their Australian employer. Note: a deduction for the Australian tax paid may be allowed against the UK tax payable on this income (paragraph (1) of Article 19 of the UK Agreement).