The Commissioner of Taxation has forwarded the following memorandum for advice:

I beg to request the favour of your advice on the following matters:

Section 10 (1) of the Income Tax Assessment Act reads:

Subject to the provisions of this Act, income tax shall be levied and paid in and for each financial year upon the taxable income derived directly or indirectly by every taxpayer from sources within Australia during the period of twelve months ending on the thirtieth day of June preceding the financial year in and for which the tax is payable.

The Commonwealth Act differs from the Victorian State Act in that tax is levied on income earned in Victoria in the latter statute, while the basis of taxation under the Commonwealth law is income derived in Australia.

It appears desirable to define the word 'derived' so that a definite point of discrimination will be established.

The following cases which have arisen in administration will demonstrate the difficulty of determining the source of derivation of income in the absence of a definition of the term:

1. An Australian steamship company is having built in England to its order a steamship for use in Australia. It sends to England one of its marine superintendents to look after its interests in connection with the building of the vessel and while the marine superintendent is in England his salary is remitted to him from Australia.
2. A company has its head office in London and pays an officer doing business on its behalf in Australia, direct from London. Can such income be said to be derived in Australia?
3. A. is private secretary to B., who is the head of a proprietary company carrying on business in Australia. B. leaves on a visit to the United Kingdom and America and is joined by A. who in the meantime has been doing business in Africa on behalf of the company and ultimately returns with him to Australia.

Your advice in the cases I have quoted in addition to a definition of the term 'derived' would be appreciated.

The difficulty mentioned in the Commissioner's memorandum arises not so much from the lack of a definition of the word 'derived' as from the application of that word to the numerous cases which arise in the administration of the Act.

The word 'derived' has its ordinary meaning, viz. gained or obtained (vide Murray's Oxford Dictionary, Vol. III, Part 1, p. 229).

It now becomes necessary to apply this meaning to the case to be considered.

Section 10 (1) provides that income tax is to be levied upon the 'taxable income derived directly or indirectly ... from sources within Australia'.

The important factor in deciding whether the income is taxable is not whether the person was resident in Australia, but whether the income was obtained directly or indirectly from a source in Australia.

In the cases submitted by the Commissioner it is necessary to ascertain whether the income is derived directly or indirectly from a source in Australia.

1. In this case the marine superintendent is employed by an Australian company but his work is carried out in England. The source of his income is, I think, his employment with the company, and at present that employment is in England.

In my opinion, the income of the marine superintendent, while in England, is not derived directly or indirectly from a source in Australia within the meaning of the Income Tax Assessment Act 1915.

2. In this case, the officer is employed in Australia, and I think the source of his income is his employment in Australia by the company.

In my opinion, the income of the officer is derived from a source in Australia within the meaning of the Income Tax Assessment Act 1915.

3. In this case A. is employed by the company out of Australia and I think that the source of his income for the time being is his employment by the company outside Australia.

In my opinion, the income of A. while absent from Australia is not derived directly or indirectly from a source in Australia within the meaning of the Income Tax Assessment Act 1915.

[Vol. 14, p. 116]

(1) This date is attributed. In the Opinion Book this opinion is year dated only, but it appears immediately following an opinion dated 21 October 1915.