Tag: services

INTRODUCTION

In this week’s blog we will be discussing the tax implication of rendering dependent personal services as stipulated in Article 15 of the US/Australia DTA. 

The main purpose of Article 15 is to ensure that income derived by an individual who is a resident of the US or Australia as an employee or director in the other country is taxed appropriately.

In terms of Article 15 the source state will have taxing rights on such income if the individual is present in that state for a certain period of time. 

INTERPRETING ARTICLE 15 OF THE DTA – DEPENDENT PERSONAL SERVICES

Article 15(1) sets out the basis upon which the remuneration derived by employees and directors should be taxed. Pensions, annuities, and remuneration of government employees are covered by Article 18 and 19 of the DTA and therefore not covered in terms of Article 15.

Generally, other salaries, wages, directors’ fees, etc derived by a resident of one country from an employment exercise or services performed as a director of a company in the other country will be taxed in that other country. 

Article 15(2) includes an exemption from tax in the country being visited where the visits are only for a limited period. The conditions for exemption are:

1. That the visit or visits not exceed, in the aggregate, 183 days in the year of income of the country visited;
2. That the remuneration is paid by, or on behalf of, an employer or company who is not a resident of the country being visited, and
3. That the remuneration is not deductible in determining taxable profits of a permanent establishment, fixed base or a trade or business which the employer or company has in the country being visited.

Where these conditions are met, the remuneration derived in the source state will be taxed only in the country of residence.

Article 15(3) stipulates that income derived from employment aboard a ship or aircraft operated in international traffic is to be taxed in the country of residence of the operator. The US Treasury however explained that under US law, the US taxes such income of a non-resident alien only to the extent it is derived from US sources (i.e. in US territorial waters). This paragraph does not confer an exclusive taxing right. 

Article 15(3) does not confer an exclusive taxing right and both countries retain the right to tax their residents and citizens under Art 1(3) of the DTA (Personal scope).

Remuneration derived by US residents from employment in Australia may in terms of Article 15 of the DTA, be taxable in the US rather than Australia if the remuneration is paid in respect of a visit not exceeding 183 days in the year by an employer who is not resident in Australia and has no permanent establishment in Australia.

Asena Advisors is the only multi-disciplinary (Accounting and Legal) international CPA firm in the United States that specializes in U.S. -Australia taxation.

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COVID RELIEF

Both the US and Australia implemented certain relief measures for individuals who inadvertently spent more than 183 days in the source due to the Covid pandemic. 

US Covid Relief Measures

Days that you were unable to leave the US either because of a medical condition that arose while were in the US or where you were unable to leave the US due to COVID-19 travel disruptions, you may be eligible to exclude up to 60 consecutive days in the US during a certain period.

Australia Covid Relief Measures

The ATO recognized that the Covid pandemic has created a special set of circumstances that need to be taken into account when evaluating the source of the employment income earned by a foreign resident who usually works overseas but instead performed that same foreign employment in Australia. If the remote working arrangement is short term (3 months or less), the income from that employment will not have an Australian source. However, for working arrangements longer than 3 months, an individual’s personal circumstances need to be examined to ascertain if the employment is connected to Australia. Employment income (ie salary or wages) is likely to be determined as having an Australian source if:

• • The terms and conditions of the employment contract change;
  • The nature of the job changes;
  • Work is performed for an Australian entity affiliated with the overseas employer;
  • The economic impact or result of the work shifts to Australia;
  • The employing entity is in Australia;
  • Work is performed with Australian clients;
  • The performance of the work depends on the individual being physically present in Australia to complete it;
  • Australia becomes the individual’s permanent place of work;
  • The individual’s intention towards Australia changes.

Income earned from paid leave (such as annual or holiday leave) while in Australia temporarily does not need to be declared in Australia. 

CONCLUSION 

Individuals should therefore make sure that they do not unnecessarily file tax returns in the source state if their stay was extended due to Covid related measures.  

Our team of International Tax specialists at Asena Advisors, will be able to assist you with submitting the relevant forms in the US and Australia to get access to these relief measures.  

Shaun Eastman

Peter Harper

INTRODUCTION

In this week’s blog we will be discussing the tax implication of rendering Independent Personal Services as stipulated in Article 14 of the US/Australia DTA. Article 14 is luckily far less complex than our previous blogs. 

The main purpose of Article 14 is to ensure that income derived by an individual who is a resident of the US or Australia from the performance of personal services in an independent capacity in the other country is taxed appropriately.

INTERPRETING ARTICLE 14 OF THE DTA – INDEPENDENT PERSONAL SERVICES

In terms of US domestic legislation, income earned by a non-resident individual for personal services rendered in the US which are of an independent nature is taxed at a flat rate of 30%.

Income derived by an individual who is a resident of either the US or Australia for rendering independent personal services in the other country will be taxed in that other country in which the services are performed if:

Article 14(a) – the recipient is present in that country for a period or periods aggregating more than 183 days in the year of income (or taxable year) of the country visited, or

Article 14(b) – that person has a ‘fixed base’ regularly available in that country for the purpose of performing their activities, and the income is attributable to activities exercised from that base.

We are the only multi-disciplinary international CPA firm in the United States that specializes in U.S.– Australia taxation.

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Only the country of residence can tax this income if neither of the 2 tests above are met. The US Treasury Department noted that its understanding of the term fixed base is similar to the term permanent establishment.

Independent personal services include all personal services performed by an individual for their own account which includes any services performed as a partner in a partnership. This however does not include services performed as a director of a company which will be covered by Article 15 of the DTA – Dependent personal services.

Lastly, it is important to note that these personal services include all independent activities and are not limited to specific professions. 

CONCLUSION 

The interpretation by courts of Article 14 post COVID will be quite interesting as the way we conduct business has shifted significantly and could perhaps see an amendment to this article in the new future. 

Our team of International Tax specialists at Asena Advisors, will be able to guide you on how to interpret and apply Article 14 to your specific circumstances.

Shaun Eastman

Peter Harper