1 Are you a resident of Australia for taxation purposes?
1 No. Question 2 Is the income you derive from your employment with Company Z in Australia, Australian sourced income? Answer 2 Yes. Question 3 Are you required to pay tax on your income from Company Z in Australia under the DTA between Australia and Country Z? Answer 3 Yes. Question 4 Are your airfares from Country Z to Australia to work an allowable deduction? Answer 4 No. This ruling applies for the following periods : Year ended 30 June 20XX Year ended 30 June 20XX Year ended 30 June 20XX Year ending 30 June 20XX The scheme commenced on: 1 July 20XX
You and your family permanently moved to Country Z several years ago. You purchased a property in Country Z. This property is your family home. You have worked in Country Z for registered Country Z companies. Your children are enrolled in childcare and school in Country Z. Apart from an Australian bank account and Superannuation fund you have no other assets or significant ties to Australia. Neither you nor your spouse are eligible to contribute to the PSS or the CSS Commonwealth Super Funds. A few years ago, you signed an employment offer with Company Z. The position was on a casual basis and was a working from home arrangement. A few years after the initial contract you accepted a transfer offer with Company Z. You are paid in Australian dollars into an Australian bank account. The duties are performed in Australia at the mine site. Australian law governs your employment with Company Z. You were in Australia for a number of days each year. You incurred expenses in airfares over the relevant years.
Income Tax Assessment Act 1936 subsection 6(1) Income Tax Assessment Act 1997 section 6-5 Income Tax Assessment Act 1997 section 8-1 Income Tax Assessment Act 1997 section 995-1
For tax purposes, you are a resident of Australia if you meet at least one of the following tests. You are not a resident of Australia if you do not meet any of the tests. The resides test (otherwise known as the ordinary concepts test) • The domicile test • The 183 day test • The Commonwealth superannuation fund test We have considered your circumstances, and conclude that you are a resident of Australia for taxation purposes as follows: • You are not a resident of Australia according to the resides test. • You do not meet the domicile permanent place of abode test. • You do not meet the 183 day test for the some of income years as you were not in Australia for more than 183 days. You will not meet the 183 days test for a later income year despite being in Australia for more than 183 days as your usual place of abode is in Country Z and you did not intend on taking up residence in Australia. If you exceed 183 days in the relevant income year you will not be a resident under this test as your usual place of abode is in Country Z and you do not intend on taking up residency in Australia.
• You do not meet the requirements of the Commonwealth Superannuation test. • You are not a resident of Australia for taxation purposes. For more information about residency, see Taxation Ruling TR 2023/1 Income tax: residency tests for individuals . Source of Income : Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. In Nathan v. Federal Commissioner of Taxation 25 CLR 183 at 189-190 it was recognised that the ascertainment of the actual source of a given income is a practical, hard matter of fact. As stated by Bowen J in Federal Commissioner of Taxation v. Efstathakis (1979) 9 ATR 867; 79 ATC 4256 (the Efstathakis Case) at ATR 870; ATC 4259, to determine source: ... the answer is not to be found in the cases, but the weighing of the relative importance of the various factors which the cases have shown to be relevant.
In the Cam, French, and Efstathakis cases it was held that the source of the income was where the taxpayer performed the services: • Commissioner of Taxation v Cam & Sons Ltd (1936) 36 SR (NSW) 544 (the Cam Case) - concerned wages paid to seamen employed to work on trawlers. They were engaged and paid in New South Wales, but most of their services were provided outside state territorial waters. Jordan CJ, with whom Street and Bavin JJ agreed in the Cam Case at 548, held that:
Where income is derived from wages or salary, again the source has several factors. Personal exertion may be involved in negotiating and obtaining the contract of employment, in performing the stipulated services, and obtaining payment for them.... [I]n the ordinary case of the employment of a seaman... where there is nothing special, either in the circumstances of the contract of employment or in the payment, and where the work is both done and paid for in the ordinary course, the all-important factor is the doing of the work; and the contract of employment and the payment are relatively insignificant and formal elements. But this is not necessarily the case with respect to all wages or salary. In the case of an appointment to a sinecure, the engagement and the payment may be the only significant factors Accordingly, the wages had to be apportioned based on 'working time in and out of New South Wales territorial waters. • Federal Commissioner of Taxation v French
(1957) 98 CLR 398 (the French Case) - the taxpayer was employed as an engineer by the Australian company CSR which carried on business in New South Wales and, relevantly, New Zealand. Each year, the taxpayer spent two or three weeks in New Zealand as inspecting engineer for the company in its New Zealand business. At all other times, the taxpayer performed services for the company in New South Wales. A majority of the High Court held that the wages paid in respect of the period in New Zealand were sourced in New Zealand, because this is where the services were performed, this being the most important factor in Mr French's situation (see French Case at 411, 417 and 422).
• However, the Court also made comments to the effect that this decision did not necessarily determine what would be most important in every personal services contract. For example Dixon CJ in the French Case at 405 in relation to a director and at 406 in relation to an accountant procured to achieve a specified result, and Kitto J at 417-418 refers to a situation where remuneration was payable regardless of service, and to a person who worked sometimes overseas who was paid while on sick leave, and to where a period of overseas service might in substance be merely incidental to Australian service., and
• In the Efstathakis Case - the taxpayer was a Greek National resident in Australia who was employed by the Greek Government as a secretary/typist in the Greek embassy. She had applied for the job in Greece, and the post had been gazetted there. She performed the services in Australia. Her net pay was compiled in Greece, a cheque was drawn on a bank in Greece and then received in Australia. A condition of her employment was that she could be posted anywhere in the world, but she would probably have resigned, as she had put down roots in Sydney, having child there, buying a unit, and marrying a naturalised Greek Australian. Bowen CJ, with whom Brennan and Deane JJ agreed, held that the wages paid to the taxpayer had an Australian source. His Honour considered the above factors, but gave most weight to 'the residence of the taxpayer in Australia and the facts that the services were performed and payment received [in Australia]. The payment of remuneration depended upon actual performance of the services (the Efstatakis Case at ATR 871; ATC at 4260).
As per the above cases, cases concerning the provision of personal services are decided by weighing up the outcomes of the consideration of the following three factors (with the weighting given to each determined by their relevance to the case): • the place where the contract of employment is entered into, • the place where remuneration is payable, and • the place where the services are performed. You carry out the work for Company Z in Australia at the work site. You are paid in Australian dollars into an Australian bank account and Australian law governs your contract. Australia is the source of your income from Company Z. Article 15 of the Double Tax Agreement (DTA) with Australia and Country Z states: Dependent personal services
1. Subject to the provisions of Articles XX, XX, XX and XX. salaries, wages and other similar remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State. This means that your income from Company Z is assessable in Australia. Deduction of airfares : Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for expenses to the extent they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. A deduction will not be allowed under section 8-1 of the ITAA 1997 for expenses which are of a capital, private or domestic nature, where they lack sufficient nexus to income production, or if they are incurred in gaining or producing exempt income or where a provision of the tax law prevents it. The High Court majority in Commissioner of Taxation v Payne
[2001] HCA 3 said it is well established that these words are to be understood as meaning incurred 'In the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income ( Commissioner of Taxation v Day [2008] HCA 53). You are not entitled to a deduction for the cost of your airfares from Country Z to Australia to perform your employment duties with Company Z as your transfer letter states your work site to be the Company Z location. Your working from home arrangement only applied to the previous contract. The flight to Australia to attend the work site puts you in the position to carry out your work duties and is not in the course of carrying out your work. You are therefore not entitled to a deduction for the airfares under section 8-1 of the ITAA 1997.