(upbeat music)
-: In general, residents are assessed on their worldwide
income and non-residents are assessed only on their
Australian source income.
Determining the source of income very much depends
on the particular facts of the situation.
As far as income from personal services is concerned
which includes employment income the source will usually
be regarded as being the place where the personal services
were performed.
Maria is a non-resident who lives in Italy.
For two months she worked in Australia together with
Australian colleagues as an architect in
a professional firm.
Her income from these services would have an Australian
source as she performed the services in Australia.
However, if the personal services are particularly
specialised or can be performed anywhere then the source
will potentially be determined by where the services
contract was entered into or where the payment was made.
Rode is an American professor who is paid to undertake
a legal research project.
He undertakes this project by himself in Australia
utilising online research tools.
He entered into the contract to undertake this work
in the USA and his payment is deposited into his
American bank account.
Rode's services could be argued to have an American source
as the nature of his work could be performed anywhere.
As a result the source could be based on where the contract
was entered into and payment was made rather than where
the services were performed.
For business income the source will be where
the profit was made.
This will very much depend on the nature of the business.
In general, the source of business profit will be where
value has been added.
JustChoc is a UK based company with chocolate manufacturing
operations in Australia.
It sells chocolates to Australian supermarkets
and have sales and administrative staff located
in its Australian office.
As the profits are made in Australia they will likely have
an Australian source.
In some instances, apportionment may be necessary
where the value has been added over more than one location.
Spare Parts is a business that produces goods in Australia.
The company employs sales people who travel overseas
finding foreign buyers and enter into sales contracts
with such buyers outside Australia.
It is likely that the profit of this business
would be partially sourced in Australia
and partially sourced overseas.
When interest income has been earned from a bank deposit
the source will be the location of the bank account
where the money was deposited.
For dividend income the source of the dividend will be where
the profits of the company paying the dividend were made.
For rental income the source will be the location
of the country where the property is located.
For royalty income flowing from intellectual property
the source will generally be the country in which
the intellectual property is located and registered.
However, where an Australian resident business pays
a royalty to a non-resident the royalty will be deemed
to be Australian sourced.
To recap, generally residents are assessable on their
worldwide income and non-residents are assessable only
on their Australian source income.
The determination of source depends on the facts
of the situation with legislation and case law providing
guidance on the source for personal services, business
and passive income streams.