Assessability of employment income received by a dual resident

Are the salary and wages derived by a taxpayer, who is a resident of Australia and Norway, assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The salary and wages derived by a taxpayer who is a resident of Australia and Norway is assessable income under subsection 6-5(2) of the ITAA 1997.

The taxpayer, a Norwegian national, worked in Australia for a period of 18 months as part of a work exchange programme.

The salary and wages for work performed in Australia were paid partly by the taxpayer's regular Norwegian employer and partly by an Australian company.

The taxpayer maintained the employment contract with the Norwegian employer throughout their stay in Australia. The taxpayer returned to work for the same employer on completion of the work exchange program in Australia.

The taxpayer maintained a residence in Norway while living in a rented home in Australia. The residence in Norway was rented out during the period of their stay in Australia.

The taxpayer is not married and the taxpayer's close relatives live in Norway.

The Norwegian tax authorities consider the taxpayer a resident of Norway for Norwegian tax purposes.

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.

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 income received by a taxpayer from a tax treaty country, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one.

Schedule 23 to the Agreements Act contains the tax treaty between Australia and the Kingdom of Norway (the Norwegian Convention). The Norwegian Convention operates to avoid the double taxation of income received by Australian and Norwegian residents.

Article 4(1) of the Norwegian Convention provides that a person is a resident of Australia, subject to Article 4(2) of the Norwegian Convention, if the person is a resident of Australia for the purposes of Australian tax.

The taxpayer is a resident of Australia for Australian tax purposes for the relevant period as the taxpayer resided in Australia (Taxation Ruling TR 98/17). Therefore, the taxpayer satisfied the requirements of Article 4(1) of the Norwegian Convention.

Article 4(2) of the Norwegian Convention provides that in relation to income from sources in Norway, a person who is subject to Australian tax on income which is from sources in Australia shall not be treated as a resident of Australia unless the income from sources in Norway is subject to Australian tax or, if that income is exempt from Australian tax, it is so exempt solely because it is subject to Norwegian tax.

Article 4(2) of the Norwegian Convention would not apply to the taxpayer as the taxpayer is a resident of Australia who is subject to tax on their world-wide income and the income was not exempt from tax in Australia.

Article 4(3) of the Norwegian Convention sets out the tiebreaker rules for residency for individuals where they are considered to be a resident of both Australia and Norway. The tiebreaker rules ensure that the individual is only treated as a resident of one country for the purposes of working out liability to tax on their income under the Norwegian Convention. However, the tiebreaker rules do not change a taxpayer's residency status for Australian tax law purposes.

Article 4(3) of the Norwegian Convention provides that where and individual is a resident of both Australia and Norway they shall be deemed to be a resident of the State: (a) in which they maintain a permanent home (b) if they have a permanent home in both Australia and Norway, they shall be deemed a resident of the country to which their personal and economic relations are closer.

Paragraphs 12 and 13 of the Commentary on Article 4 concerning residence contained in the OECD Model Tax Convention states that a permanent residence is a place where the individual owns or possesses a home, which must be retained for its permanent use, as opposed to staying at a particular place for a short period of time. A home can be house or apartment belonging to or rented by the individual, and it must be available to them at all times continuously, and not occasionally for the purpose of a short term stay.

The taxpayer maintained a permanent home both in Australia and Norway as they retained their home in Norway to be available to them on their return and had rental accommodation available, for more than a short stay, in Australia. It is, therefore, necessary to consider the taxpayer's closer personal and economic relations under Article 4(3)(b) of the Norwegian Convention.

Article 4(4) of the Norwegian Convention provides that for the purpose of Article 4(3)(b) of the Norwegian Convention, an individual's citizenship or nationality as well as habitual abode are factors that determine the degree of personal and economic relations with a Contracting State.

Though the taxpayer maintained a permanent home in both Australia and Norway, the taxpayer's personal and economic relations were in Norway. Therefore, for the purpose of applying the Norwegian Convention, the taxpayer would be considered a resident of Norway. However, this does not mean that taxpayer's Australian resident status is lost for the general operation of the Australian tax law. The taxpayer will continue to be treated an Australian resident under the Australian tax law and their Australian sourced income will be subject to tax in Australia under the terms of the Norwegian Convention.

Article 15(1) of the Norwegian Convention provides that salaries, wages and other similar remuneration derived by an individual who is a resident of Norway in respect of an employment shall be taxable only in the Norway unless the employment is exercised in Australia. If the latter applies, the income may also be taxed in Australia.

However, Article 15(2) of the Norwegian Convention provides that income from employment exercised in Australia will not be taxed in Australia if: (a) the individual is present in Australia for a period or periods not exceeding in the aggregate 183 days in the relevant Australian tax year (b) the income is paid by, or on behalf of, an employer who is not a resident of Australia, and (c) the income is not deductible in determining taxable profits of a permanent establishment or a fixed base which the employer has in Australia.

As the taxpayer was present in Australia for a period exceeding 183 days in the Australian tax year and the source of her employment income is deemed to be income from sources in Australia, Article 15(2) of the Norwegian Convention will not apply. Australia may therefore tax the employment income in the first instance.

As an Australian resident, the taxpayer would normally be taxed on their world wide income. However, since the taxpayer is considered a resident of Norway for the purposes of the tax treaty, Australia can only tax the taxpayer on their Australian sourced items of income covered by the tax treaty.

Accordingly, the salary and wages derived by the taxpayer from Australia are assessable income under subsection 6-5(2) of the ITAA 1997.