Assessability of salary and wages received by Australian resident working as locally engaged staff for German government in Australia

Are the salary and wages received by a resident taxpayer, who is employed as a locally engaged staff member by the German government in Australia, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The salary and wages received by a resident taxpayer, who is employed as a locally engaged staff member by the German government in Australia is assessable under subsection 6-5(2) of the ITAA 1997.

The taxpayer is a German citizen who is a resident of Australia for tax purposes.

The taxpayer is employed as a locally engaged staff member by the German government in Australia.

The taxpayer exercises the duties of their employment in Australia.

The taxpayer receives salary and wages income from the German government in respect of their employment.

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 during the income year.

Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

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 Income Tax Assessment Act 1936 (ITAA 1936) and ITAA 1997 so that those Acts are read as one.

Schedule 9 to the Agreements Act contains the double tax agreement between Australia and the Federal Republic of Germany and the protocol to that agreement (the German Agreement). The German Agreement operates to avoid the double taxation of income received by Australian and German residents.

Article 17 of the German Agreement deals with government service. Article 17(2) of the German Agreement provides that salary and wages paid by Germany in respect of an employment shall be taxable only in Germany. If, however, the employment is exercised in Australia by an individual who is an Australian citizen or who is ordinarily resident in Australia, the remuneration shall be taxable only in Australia.

As the taxpayer is an Australian resident and performs the duties of their employment in Australia, the salary and wages by the taxpayer received from the German government are taxable only in Australia under Article 17(2) of the German Agreement.

Accordingly, the salary and wages received by the taxpayer from the German government in respect of employment as a locally engaged staff member in Australia are assessable under subsection 6-5(2) of the ITAA 1997.