Assessability of foreign employment income received by Australian citizen who is not an Australian resident

Are the salary and wages received by a non resident taxpayer, an Australian citizen, from employment in a foreign country assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The salary and wages income received by the non resident taxpayer, an Australian citizen, from employment in a foreign country are not assessable under subsection 6-5(3) of the ITAA 1997 as they are exempt under paragraph 23(r) of the Income Tax Assessment Act 1936 (ITAA 1936).

The taxpayer is an Australian citizen and non-resident of Australia for income tax purposes.

The taxpayer commenced employment in a foreign country under a short term contract which later became permanent employment.

The taxpayer intends to remain in the overseas country indefinitely.

The taxpayer receives salary and wages income from the non resident employer.

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident includes all the ordinary income derived directly or indirectly from all Australian sources during the income year.

Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.

Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23(r) of the ITAA 1936 which provides that income derived by a non-resident from sources wholly out of Australia will be exempt from tax.

The source of income derived from employment is generally the place where the duties or services are performed ( Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 11 ATD 288; (1957) 7 AITR 76). Therefore, the salary and wages received by the taxpayer from employment in a foreign country has a foreign source.

The salary and wages derived by the non-resident taxpayer are from sources wholly out of Australia and therefore are exempt from income tax under paragraph 23(r) of the ITAA 1936.

Accordingly, the salary and wages received by the taxpayer are not assessable under subsection 6-5(3) of the ITAA 1997.