Issue
Are the salary and wages earned by a non-resident taxpayer, who is an Australian citizen employed as a locally engaged staff by an Australian government organisation in France, assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The salary and wages earned by a non-resident taxpayer, who is an Australian citizen employed as a locally engaged staff by an Australian government organisation in France, are not assessable under subsection 6-5(3) of the ITAA 1997.
Facts
The taxpayer is an Australian citizen but is a non-resident of Australia for income tax purposes.
The taxpayer resides permanently in France.
The taxpayer is employed as a locally engaged staff by an Australian government organisation in France.
The taxpayer receives salary and wages from the Australian government organisation in France.
Reasons for Decision
Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year and other ordinary income that a provision includes as assessable income on some basis other than having an Australian source.
In determining liability to Australian tax on foreign sourced 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 in some limited situations).
Schedule 11 to the Agreements Act contains the double tax agreement between Australia and the French Republic (the French Agreement). Schedule 11A of the Agreements Act contains the protocol amending the French Agreement (the French Protocol). The French Agreement and the French Protocol operate to avoid the double taxation of income received by Australian and French residents.
Paragraph (1) of Article 18 of the French Agreement (amended by the French Protocol) provides that remuneration paid by the Australian government to any individual in respect of services rendered to the Australian government in the discharge of governmental functions will be exempt from French tax unless the services are rendered in France by an individual who is a French national or is permanently resident in France.
Subparagraph (b) of paragraph (1) of Article 3 of the French Agreement provides that for the purposes of French tax a person is a resident of France if the person is domiciled in France. 'French tax' is defined as tax imposed by France which includes income tax and corporation tax (Article 1 and Article 2 of the French Agreement).
As the taxpayer is permanently resident in France, the salary and wages paid by the Australian government organisation in France will not be exempt from French tax.
Accordingly, the salary and wages earned by the non resident taxpayer while working for an Australian government authority in France will not be assessable under subsection 6-5(3) of the ITAA 1997.