Assessable income: personal services income attributed to a non-resident under Part 2-42 of the ITAA 1997 - no double tax agreement applies

Where subsection 86-15(1) of the Income Tax Assessment Act 1997 (ITAA 1997) operates in relation to a taxpayer's personal services income ('the subsection 86-15(1) amount') and: • the subsection 86-15(1) amount has a foreign source; and • the taxpayer is a resident of a country that does not have a double tax agreement with Australia;

does paragraph 6-10(5)(b) of the ITAA 1997 include the subsection 86-15(1) amount in the taxpayer's assessable income?

Yes. Where subsection 86-15(1) of the ITAA 1997 operates in relation to a taxpayer's personal services income and: • the subsection 86-15(1) amount has a foreign source; and • the taxpayer is a resident of a country that does not have a double tax agreement with Australia;

paragraph 6-10(5)(b) of the ITAA 1997 does include the subsection 86-15(1) amount in the taxpayer's assessable income.

The taxpayer is an individual who for taxation purposes, is neither a resident of Australia nor a country with which Australia has a Double Tax Agreement.

In the income year, the ordinary income of a private company includes the taxpayer's personal services income within the meaning of subsection 84-5(1) of the ITAA 1997.

The private company is not conducting a personal services business within the meaning of Division 87 of the ITAA 1997 and subsection 86-15(1) of Division 86 of Part 2-42 of the ITAA 1997 includes an amount in the taxpayer's assessable income. That amount does not have an Australian source for the purposes of Division 6 of Part 1-3 of the ITAA 1997.

Division 6 of Part 1-3 of the ITAA 1997 deals with the core rules regarding ordinary income and statutory income included in assessable income.

Subsection 6-10(5) of the ITAA 1997 provides: If you are not an Australian resident, your assessable income includes: (a) your statutory income from all Australian sources; and (b) other statutory income that a provision includes in your assessable income on some basis other than having an Australian source.

Subsection 6-10(2) of the ITAA 1997 provides that statutory income are amounts which are not ordinary income, but are included in assessable income by provisions of the Income Tax Assessment Act 1936 (ITAA 1936) or the ITAA 1997 about assessable income.

Section 10-5 of the ITAA 1997 provides a list of the statutory income provisions. That list includes section 86-15 of Division 86 of Part 2-42 of the ITAA 1997.

Subsection 86-15(1) of the ITAA 1997 provides that: Your assessable income includes an amount of ordinary income or statutory income of a personal services entity that is your personal services income.

Under subsection 86-15(2) of the ITAA 1997, a personal services entity is a company, partnership or trust whose ordinary income or statutory income includes the personal services income of one or more individuals.

Subsection 86-15(1) of the ITAA 1997 will not operate where the personal services entity: • derives the personal services income from conducting a personal services business (subsection 86-15(3) of the ITAA 1997); • pays the personal services income promptly to the taxpayer as salary or wages (subsection 86-15(4) of the ITAA 1997); or • is not assessable on the personal services income under other provisions in the ITAA 1936 or the ITAA 1997 (subsection 86-15(5) of the ITAA 1997).

Therefore, a subsection 86-15(1) amount is included in assessable income of an individual on a basis other than having an Australian source for the purposes of paragraph 6-10(5)(b) of the ITAA 1997.

In the circumstances here, the subsection 86-15(1) amount is included in assessable income of the taxpayer under paragraph 6-10(5)(b) of the ITAA 1997 because it is statutory income of a non-resident taxpayer that is not sourced in Australia and is included in the taxpayer's assessable income on a basis other than having an Australian source.

As Australia has not entered into a double tax agreement with the country of which the taxpayer is a resident, the issue of whether an amount is included in assessable income is determined solely on the basis of Australian domestic law.