Timor Sea Treaty - Joint Petroleum Development Area instructions

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Introduction

Timor Sea Treaty - Joint Petroleum Development Area instructions 2013-14

Who should use these instructions?

Use these instructions if you have earned income for performing work or services in the Joint Petroleum Development Area (JPDA) as defined in the Timor Sea Treaty (the treaty).

To ensure you fill in your tax return correctly, either use these instructions yourself or give them to your registered tax agent.

Background

The treaty was signed on 20 May 2002 and applies from that date.

The treaty is an agreement between Australia and Timor-Leste (formerly East Timor) which creates the JPDA. It provides the framework for how the petroleum resources within the JPDA are to be shared. The treaty grants 90% of the petroleum resources to Timor-Leste and 10% to Australia.

Source of income

The treaty specifies that for the purposes of the tax laws of Australia and Timor-Leste, the JPDA is deemed to be part of Australia and Timor-Leste. Therefore, income derived from working in the JPDA is sourced in both Australia and Timor-Leste.

The effect of the treaty is that:

  • Australian residents are taxed on their total JPDA income at resident rates of tax, with a foreign income tax offset allowed for the lesser of the:
    • Australian tax payable on the net assessable JPDA income*, and
    • tax paid to Timor-Leste
  • residents of Timor-Leste are taxed on 10% of their net assessable JPDA income* at foreign resident rates of tax
  • residents of countries other than Australia and Timor-Leste are taxed on their total JPDA income at foreign resident rates of tax, with a tax offset allowed equal to 90% of the Australian tax payable on their net assessable JPDA income*.

* Net assessable JPDA income is assessable JPDA income less allowable deductions relating to that income.

Residency status

Residency status is determined by the laws of each country.

Generally, we consider you to be an Australian resident for tax purposes if you have:

  • always lived in Australia or you have come to Australia and live here permanently, or
  • been in Australia for more than six months during the income year (unless your usual home is overseas and you do not intend to live in Australia).

The standards we use to determine residency status are not the same as those used by the Department of Immigration and Citizenship.

In limited circumstances you may be considered to be a resident of both Australia and Timor-Leste. The treaty contains rules to determine the country in which you are a resident solely for the purposes of the treaty.

If you are not sure of your residency status, access the tool Are you a resident? or phone 13 28 61.

Zone tax offset

The JPDA does not qualify as a remote or isolated area of Australia for purposes of the zone tax offset.

Completing your Australian tax return

To ensure that your tax return is filled out correctly and to prevent delays with your assessment, you need to complete your tax return by following these instructions.

Step 1

Complete the Schedule of additional information - item 20 Joint Petroleum Development Area.

Using e-tax

To complete the schedule using e-tax, select Tools in the Menu bar and then choose 'Additional information'. This option is only enabled on the Spouse details screen (click on Spouse details in the Navigator). A blank notepad will be displayed.

Enter the heading SCHEDULE OF ADDITIONAL INFORMATION - ITEM 20 JOINT PETROLEUM DEVELOPMENT AREA followed by the appropriate sentence on the schedule of additional information (A, B, C or D). For example, if you were an Australian resident for the whole year you complete the schedule as follows:

SCHEDULE OF ADDITIONAL INFORMATION - ITEM 20 JOINT PETROLEUM DEVELOPMENT AREA

I was an Australian resident for the whole year.

Step 2

If using Individual tax return instructions 2014, attach your completed schedule to page 3 of your tax return. Print X in the Yes box at Taxpayer's declaration question 2 on page 10 of your tax return.

Step 3

Read the instructions below and go to the parts that apply to you:

If you printed X in the A box on the schedule of additional information go to Part 1 - Australian Resident.

If you printed X in the B box on the schedule of additional information go to Part 2 - Resident of Timor-Leste.

If you printed X in the C box on the schedule of additional information go to Part 3 - Resident of another country.

If you printed X in the D box on the schedule of additional information you may need to apportion your JPDA income and complete more than one part. You will need to follow the instructions in

Part 1 for the period that you were an Australian resident

Part 2 for the period that you were a resident of Timor-Leste

Part 3 for the period that you were a resident of another country.

Part 1 - Australian Resident

Use this part if you were an Australian resident for tax purposes during 2013-14.

What you need

You need to know

You are taxed on your net assessable JPDA income at resident rates of tax with a foreign income tax offset allowed for the lesser of the:

  • Australian tax payable on your net assessable JPDA income, and
  • tax paid to Timor-Leste.

What you need to do

Use worksheets 1 and 2 to complete the following items on your tax return:

  • Income item 1 salary or wages
  • Deductions items D1 to D5, work-related expenses
  • Net foreign employment income at U and Foreign income tax offset at O item 20 (in the supplementary section), foreign source income and foreign assets or property.

Follow these steps to complete your tax return.

Step 1

Complete worksheet 1 if you have a payment summary that includes JPDA income. Worksheet 1 shows you how to deal with your JPDA income and deductions.

Step 2

Unless you are using e-tax, complete all parts of your tax return except:

  • item 20 (supplementary section)
  • Total supplement tax offsets (supplementary section)
  • item T (Tax return for individuals, page 5).
  • Total tax offsets (Tax return for individuals, page 5).

If you are using e-tax, include the tax paid to Timor-Leste from the Foreign tax paid entry on your payment summary. Include the amount at Foreign tax paid column at item 20 (screen 2310).

Step 3

Complete worksheet 2. Worksheet 2 shows you how to work out your foreign income tax offset for your net assessable JPDA income. In the course of completing worksheet 2, you will complete O item 20 on your tax return (supplementary section).

Step 4

Complete the remainder of your tax return.

Example 1 will help you fill in worksheets 1 and 2.

Example 1

Jose, a driller, lived in Darwin (zone A) when he was not at a drilling site. For 8 months of the income year he worked in the JPDA. Jose received a PAYG payment summary - individual non-business which showed $74,000 gross salary and wages and Australian PAYG tax withheld of $5,424. He received a separate PAYG payment summary - foreign employment that showed gross salary and wages of $96,000 relating to his period in the JPDA and that, in addition to the $11,664 Australian tax withheld, $17,280 tax had been withheld and paid to Timor-Leste. The amount paid to Timor-Leste was shown on the payment summary at the 'foreign tax paid' label.

Jose had work-related expenses of $700 of which $500 related to his work while in the JPDA. He had no other income or deductions. Jose's taxable income is therefore $169,300. Jose had no dependants. He had appropriate hospital cover for the whole year and was not liable to pay Medicare levy surcharge. He is entitled to a zone offset of $338 as he lived in Darwin for more than 183 days.

See worksheet 1 and worksheet 2 for how Jose would fill them in.

Jose will have to pay an amount of $18,421.50. That is, $53,127.50 (tax and Medicare levy payable), minus $17,280 (foreign income tax offset), minus $338 (zone tax offset), minus $17,088 ($5,424 + $11,664 Australian tax withheld).

If Jose had worked in Australia for the full year and had the same income and deductions, he would have completed the tax return differently and had a different PAYG Australian tax withheld amount, but his refund would have been the same.

Calculations are based on monthly payments.

Worksheet 1: Net assessable JPDA income subject to tax in Australia and Timor-Leste

If you have more than one PAYG payment summary - foreign employment or PAYG payment summary - individual non-business showing JPDA income, you should add them together to obtain a total gross JPDA income figure.

Jose

You

Total gross JPDA income included on your PAYG payment summaries

Include this amount at item 1 on your tax return.

$96,000

$

(a)

Total work-related expenses directly related to your JPDA income*

Include this amount at the appropriate items in D1 to D5 on your tax return.

$500

$

(b)

Take (b) away from (a). Include the amount at (c) at U item 20 (e-tax will do this automatically). This is the amount of your net assessable JPDA income.

$95,500

$

(c)

* Work-related expenses are explained at questions D1 to D5 in Individual tax return instructions 2014 and e-tax.

Did you have work-related expenses?

If you had work-related expenses relating to your JPDA income (that is, you showed an amount at (b) in worksheet 1), then you should complete items D1 to D5 on your tax return or in e-tax.

These items deal with deductions for work-related expenses as follows:

  • D1 car
  • D2 travel
  • D3 clothing
  • D4 self-education
  • D5 others.

Are you using e-tax?

If you are using e-tax, e-tax will do the remainder of the calculations for you. However, if you want to work out the amount of your foreign income tax offset for yourself, complete worksheet 2.

You need the amounts for your tax and Medicare items. These are available from your Tax estimate screen (screen 8101) on the navigator bar. Make sure you have completed all your income, deductions and Medicare items first. Include the tax paid to Timor-Leste in the Foreign tax paid column at item 20 (screen 2310).

Your foreign income tax offset is shown on the Tax offsets available screen (screen 8102). You navigate to this screen from the Tax estimate screen (screen 8101).

Completing worksheet 2

You cannot use worksheet 2 if you have:

  • exempt foreign employment income
  • other foreign income
  • unapplied foreign losses from prior years
  • other foreign income tax offsets available.

If any of the above apply, you may need to read the Guide to foreign income tax offset rules 2014.

Worksheet 2: Foreign income tax offset calculation

Jose

You

Your taxable income as shown on your tax return

$169,300

$

(a)

Tax** on your taxable income using our rates and calculators or e-tax*

$53,127

$

(b)

Your net assessable JPDA income (the amount at (c) in worksheet 1 shown at U item 20).

$95,500

$

(c)

Take (c) away from (a).

$73,800

$

(d)

Tax** on (d).

$16,639

$

(e)

Take (e) away from (b).

$36,488

$

(f)

Tax paid to Timor-Leste on your JPDA income as advised by your payer

$17,280

$

(g)

Your foreign income tax offset is:

  • if the amount at (g) does not exceed $1,000, the amount at (g)
  • if the amount at (f) is greater than or equal to the amount at (g), the amount at (g)
  • if the amount at (f) is less than the amount at (g), the amount at (f).

Include your foreign income tax offset at O item 20 on your tax return (supplementary section).

* If using e-tax you must complete all your income, deduction and Medicare items first.
** This includes any Medicare levy and Medicare levy surcharge payable

Go to Part 2 - Resident of Timor-Leste if you printed X in the D box on the Schedule of additional information. Otherwise, go to Check that you have...

Part 2 - Resident of Timor-Leste

Use this part if you were a resident of Timor-Leste for tax purposes during 2013-14. Otherwise, go to Part 3 - Resident of another country.

What you need

You need to know

A proportion of 10% of your income earned for work or services performed in the JPDA is taxed in Australia. Your payer should have deducted Australian tax at the minimum rate of 29% on 10% of your JPDA income.

When completing items D1 to D5, you show only 10% of your expenses relating to your work in the JPDA.

What you need to do

Before you start on item 1 on your tax return, complete worksheet 3. First, add up the gross amounts shown on all your payment summaries that are JPDA income. Example 2 below has been provided to help you fill in worksheet 3.

Example 2

Peter, a labourer, was a resident of Timor-Leste for the whole year. His PAYG payment summary - foreign employment shows a gross payment of $200,000 and Australian PAYG tax withheld of $3,480. His sole source of income was from the JPDA. Peter had work-related expenses of $200.

Peter will claim $20 (that is, 10% of $200) as his work-related expenses at D5 Other work-related expenses on his tax return.

Peter's taxable income is $19,980. His Australian tax payable is $338.20. Therefore, he will receive a tax refund of $3,141.80, that is, $338.20 (tax payable) minus $3,480 (tax withheld).

Peter uses worksheet 3.

Worksheet 3: assessable JPDA income for resident of Timor-Leste

Peter

You

Total gross JPDA income included on your payment summary

$200,000

$

(a)

Divide (a) by 10.

$20,000

$

(b)

Include the amount at (b) at item 1 on your tax return.

Include 10% of any work-related expenses that relate to your JPDA income at items D1 to D5.

Go to Part 3 - Resident of another country if you printed X in the D box on the schedule of additional information. Otherwise, go to Check that you have ...

Part 3 - Resident of another country

Use this part if you were a resident of a country other than Australia or Timor-Leste for tax purposes during 2013-14.

What you need

You need to know

Your net income earned in the JPDA is taxed in Australia. You can claim a tax offset of 90% of Australian tax payable on that income. Your payer should have withheld Australian tax on 10% of your JPDA income.

What you need to do

Show all your Australian income (including all JPDA income) and deductions as instructed by Individual tax return instructions 2014 or e-tax. Use worksheet 4 or worksheet 5 to calculate your tax offset. Use worksheet 4 if the only Australian income you had was JPDA income; otherwise, use worksheet 5. If you are using worksheet 5, example 3 will assist you.

Worksheet 4: JPDA tax offset for foreign residents whose only Australian income is JPDA income

Your taxable income as shown on your tax return

$

(a)

Calculate your tax using the rates and calculators or e-tax*

$

(b)

Multiply (b) by 90.

$

(c)

Divide (c) by 100.

$

(d)

The amount at (d) is your JPDA tax offset. Include this amount at C item T10 Other non-refundable tax offsets on your tax return (supplementary section).

*If using e-tax you must complete all your income, deductions and Medicare items first.

Example 3

Gavin, a chef, was a resident of Malaysia for the whole year. His Australian assessable income was $80,000, of which $70,000 was JPDA income. He paid $100 for work-related expenses related to earning his JPDA income but had no other allowable deductions. He had no other amount to show at item T10. Gavin uses worksheet 5 below to calculate his JPDA tax offset.

Gavin's JPDA tax offset is $20,445. He transfers this amount to C item T10 on his tax return (supplementary section) and prints H in the CLAIM TYPE box at the right of C.

Worksheet 5: JPDA tax offset for foreign residents who have JPDA income and other Australian income

Gavin

You

Your taxable income as shown on your tax return

$79,900

(a)

Calculate your tax using the rates and calculators or e-tax*.

$25,968

(b)

Divide (b) by (a) (round to at least 3 decimal places).

0.325

(c)

Net JPDA income (after any allowable deductions relating to JPDA income)

$69,900

(d)

Multiply (c) by (d).

$22,717.50

(e)

Multiply (e) by 90.

$2,044575.00

(f)

Divide (f) by 100.

$20,445.75

(g)

The amount at (g) is your JPDA offset. Include this amount at C item T10 Other non-refundable tax offsets on your tax return (supplementary section).

*If using e-tax you must complete all your income, deductions and Medicare items first.

Check that you have

  • completed the items on your tax return as shown in the relevant parts
  • attached your completed Schedule of additional information: Item 20 Joint Petroleum Development Area to page 3 of your tax return
  • printed X in the Yes box at Taxpayer's declaration question 2 on page 10 of your tax return.

More information

Publications

Phone

13 28 61

Completing the schedule

  1. Determine your residency for tax purposes (see Residency status) for the periods during 2013-14 that you were in the JPDA then complete this schedule.
  2. Attach the completed schedule to page 3 of your tax return.
  3. Print X in the Yes box at Taxpayer's declaration question 2 on page 10 of your tax return.

Schedule of additional information: Item 20 Joint Petroleum Development Area

I declare that I worked in the Joint Petroleum Development Area.

Name

Tax file number

Print X in the appropriate box.

A

I was an Australian resident for the whole year

B

I was a resident of Timor-Leste for the whole year

C

I was a resident of a country other than Australia or Timor-Leste for the whole year

D

I changed my residence during the income year (provide details of the dates that cover each period)

Dates

Day

Month

Year

to

Day

Month

Year

Country

Dates

Day

Month

Year

to

Day

Month

Year

Country

Dates

Day

Month

Year

to

Day

Month

Year

Country

Sign here

How self-assessment affects you

Self-assessment means we use the information you give on your tax return and any related schedules and forms to work out your refund or tax liability. We do not take any responsibility for checking the accuracy of the details you provide, although our system automatically checks the arithmetic.

Although we do not check the accuracy of your tax return at the time of processing, at a later date we may examine the details more thoroughly by reviewing specific parts, or by conducting an audit of your tax affairs. We also have a number of audit programs that are designed to continually check for missing, inaccurate or incomplete information.

What are your responsibilities?

It is your responsibility to lodge a tax return that is signed, complete and correct. Even if someone else, including a tax agent, helps you to prepare your tax return and any related schedules, you are still legally responsible for the accuracy of your information.

What if you lodge an incorrect tax return?

If you become aware that your tax return is incorrect, you must contact us straight away.

Initiatives to complement self-assessment

There are a number of systems and entitlements that complement self-assessment, including:

  • the private ruling system (see below)
  • the amendment system (if you find you have left something out of your tax return)
  • your entitlement to interest on early payment or over-payment of a tax debt.

Do you need to ask for a private ruling?

If you are uncertain about how a tax law applies to your personal tax affairs, you can ask for a private ruling. To do this, complete a Private ruling application form (not for tax professionals)(NAT 13742), or contact us.

Lodge your tax return by the due date, even if you are waiting for a response to your application. You may need to request an amendment to your tax return once you have received the private ruling.

We publish all private rulings at ato.gov.au/rba

Before we publish them we edit the text to remove any information that would identify you.

Our commitment to you

We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations.

If you follow our information and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take.

Some of the information on this website applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information.

If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

Last Modified: 30 June 2014

ATO references:
NO NAT 8277; QC 39813

Timor Sea Treaty - Joint Petroleum Development Area instructions
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Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).