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ATO Interpretative Decision

ATO ID 2006/28 (Withdrawn)

	This ATO ID is withdrawn from the database due to legislative changes to section 23AG of the Income Tax Assessment Act 1936 which took effect from 1 July 2009. Despite its withdrawal, this ATOID continues to be a precedential view in respect of decisions for income years up to, and including, the 2008/2009 income year.
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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision. This ATOID provides you with the following level of protection: If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Are the salary and wages received by you, while employed in Austria, assessable under subsection 6-5 (2) of the Income Assessment Act 1997 (ITAA 1997)?

Decision

No. The salary and wages received by you, while employed in Austria, are not assessable under subsection 6-5(2) of the ITAA 1997 as they are exempt from tax under subsection 23AG(1) of the Income Assessment Act 1936 (ITAA 1936).

Facts

The taxpayer is a resident of Australia for income tax purposes.

The taxpayer provided dependant personal services in Austria.

The taxpayer's employer is not a resident of Australia or Austria.

The employer does not have a permanent establishment or fixed base in Austria.

The taxpayer is present in Austria for less than 91 days.

The taxpayer has been engaged in continuous foreign service for more than 91 days.

Reasons for Decision

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.

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 23AG of the ITAA 1936 which deals with overseas employment income.

Subsection 23AG(1) of the ITAA 1936 provides that, where a resident taxpayer is engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived from foreign service will be exempt from tax in Australia. 'Foreign service' includes service in a foreign country in the capacity as an employee and 'foreign earnings' includes income consisting of salary and wages (subsection 23AG(7) of the ITAA 1936).

However, subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG(1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the reasons listed. One of the listed reasons is where the income earned by the resident in the foreign country is made exempt by the operation of a double tax agreement (paragraph 23AG(2)(b) of the ITAA 1936).

Therefore it is necessary to consider not only the income tax laws but also any applicable tax treaties contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Schedule 27 to the Agreements Act contains the tax treaty between Australia and the Republic of Austria (the Austrian Agreement). The Austrian Agreement operates to avoid the double taxation of income received by Australian and Austrian residents.

Article 15(1) of the Austrian Agreement provides that salary and wages derived by an individual who is a resident of Australia in respect of employment shall be taxable in Australia unless the employment is exercised in Austria. If the employment is exercised in Austria, the salary and wages may be taxed in Austria.

However, Article 15(2) of the Austrian Agreement provides that remuneration derived by a resident of Australia in respect of employment in Austria shall be taxable only in Australia if:

(a)

 the taxpayer is present in Austria for a period or periods not exceeding in the aggregate 183 days in the year of income;

(b)

 the remuneration is paid by, or on behalf of, an employer who is not an Austrian resident;

(c)

 the remuneration is not deductible in determining the taxable profits of a permanent establishment or fixed base which the employer has in Austria; and

(d)

 the remuneration is, or upon the application of Article 15 will be, subject to tax in Australia.

Article 15(2)(a) and (b) of the Austrian Agreement are satisfied as the taxpayer will be present in Austria for a period or periods not exceeding in the aggregate 183 days during the Austrian fiscal year of income and the employer is not a resident of Austria. Article 15(2)(c) is also satisfied as the remuneration is not deductible in determining the taxable profits of a permanent establishment.

The words 'subject to tax' in Article 15(2)(d) refers to whether Australia provides an exemption for this type of income. As subsection 23AG(1) exempts the salary and wages earned by the taxpayer in Austria, Article 15(2)(d) cannot be satisfied.

Therefore, Article 15(2) of the Austrian Agreement will not be applicable.

As the taxpayer is a resident of Australia for income tax purposes, Article 15(1) of the Austrian Agreement applies, and as the employment is exercised in Austria, the remuneration may be taxed in Austria.

Paragraph 23 of Taxation Ruling 2001/13 provides that the phrase 'may be taxed' normally means that the source has a non-exclusive entitlement to tax the income. However, under normal international tax principles, the other country may also continue to tax its residents on income, wherever sourced, provided it is permissible under domestic law and the tax treaty does not explicitly prevent it from doing so.

The Austrian Agreement does not explicitly prevent Australia from taxing the taxpayer on this Austrian sourced income. However, under Australian income tax laws, subsection 23AG(1) of the ITAA 1936 will operate to exempt the income received from Austria as the taxpayer has been engaged in foreign service for a continuous period of not less than 91 days.

Accordingly, the salary and wages received by the taxpayer from employment in Austria will not be assessable under subsection 6-5(2) of the ITAA 1997.

Date of decision: 21 July 2005

Year of income:

Year ended 30 June 2005

Legislative References:
Income Tax Assessment Act 1936
   subsection 23AG(1)
   subsection 23AG(2)
   paragraph 23AG(2)(b)
   subsection 23AG(7)

Income Tax Assessment Act 1997
   subsection 6-5(2)
   section 11-15
   subsection 6-15(2)

International Tax Agreements Act 1953
   section 4
   Schedule 27, Article 15(1)
   Schedule 27, Article 15(2)

Related Public Rulings (including Determinations)
Taxation Ruling TR 2001/13
Taxation Ruling TR 96/15
Taxation Ruling TR 96/15 - Addendum
Taxation Ruling TR 96/15 - Erratum

Keywords
Austria
Double tax agreements
Exempt income
Foreign income
Foreign salary & wages
International tax

Date of publication: 10 February 2006

ISSN: 1445-2782