Assessability of government employment income from the United Kingdom

Are the salary and wages earned by an Australian resident taxpayer from an Australian Government authority while working in the United Kingdom (UK) for a period of two years, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The salary and wages earned by an Australian resident taxpayer from an Australian Government authority while working in the UK for a period of two years are assessable under subsection 6-5(2) of the ITAA 1997.

The taxpayer is a resident of Australia for income tax purposes.

The taxpayer moved to the UK with their family when the spouse accepted a fixed three year contract of employment with an Australian Government authority.

The taxpayer is employed in the UK by another Australian Government authority for a fixed term of two years.

The taxpayer receives salary and wages from the Australian Government authority.

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

In determining liability to Australian tax on foreign source income 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 United Kingdom of Great Britain and Northern Ireland (the UK Agreement). The UK Agreement operates to avoid the double taxation of income received by Australian and UK residents.

Article 15 of the UK Agreement deals with governmental remuneration. Paragraph (1) of Article 15 of the UK Agreement provides that remuneration paid by the Australian Government to any individual for services rendered to the Australian Government in the discharge of governmental functions will be exempt from UK tax if the individual is not ordinarily resident in the UK.

As the taxpayer is not ordinarily a resident in the UK and is a resident of Australia for income tax purposes, the salary and wages earned from the Australian Government authority in the UK are assessable under subsection 6-5(2) of the ITAA 1997.