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Are salary or wages derived by the taxpayer included in his or her assessable income under paragraph 6-5(3)(a) of the Income Tax Assessment Act 1997 (ITAA 1997), where the salary or wages are paid to the taxpayer by a public sector organisation in Australia for services the taxpayer rendered to it in the discharge of governmental functions and as part of the taxpayer's employment in Singapore?

Yes. The salary or wages are included in the taxpayer's assessable income under paragraph 6-5(3)(a) of the ITAA 1997, where the salary or wages are paid to the taxpayer by the public sector organisation in Australia for services rendered to it in the discharge of governmental functions and as part of the taxpayer's employment in Singapore.

The taxpayer is an individual who is an Australian citizen and a 'foreign resident' for Australian tax purposes as per the definition of the term in subsection 995-1(1) of the ITAA 1997.

The taxpayer is a 'resident in Singapore' under Article 2.1(l) of the tax treaty between Australia and Singapore contained in Schedule 5 to the International Tax Agreements Act 1953 (Singapore Agreement) but is not a citizen of Singapore.

The taxpayer is employed by an Australian public sector organisation in Singapore.

The taxpayer receives remuneration in the form of salary or wages as part of their employment in Singapore with the public sector organisation in the discharge of governmental functions of that organisation.

The public sector organisation falls within the scope of the term 'the Government of the Commonwealth or of any State of the Commonwealth' in Article 14.1 of the Singapore Agreement.

As the salary or wages are paid to the taxpayer, the salary or wages are 'derived' by the taxpayer for the purposes of paragraph 6-5(3)(a) of the ITAA 1997.

Paragraph 6-5(3)(a) of the ITAA 1997 provides income derived directly or indirectly from all Australian sources during the income year is included in the assessable income of a foreign resident.

Salaries and wages are ordinary income for the purposes of section 6-5 of the ITAA 1997 ( Hayes v. Federal Commissioner of Taxation (1956) 96 CLR 47; [1956] HCA 21; 11 ATD 68; 6 AITR 248, Scott v. Federal Commissioner of Taxation (1966) 17 CLR 514; [1966] HCA 48; 10 AITR 290; 14 ATD 286).

Ordinarily, the source of salaries and wages derived by an employee is the place at which the services are performed ( Federal Commissioner of Taxation v. French (1957) 98 CLR 398; 7 AITR 76; 11 ATD 288). In the case of wages paid by a government to one of its employees, see also Federal Commissioner of Taxation v. Efstathakis [1979] FCA 28 (1979) 9 ATR 867; (1979) 79 ATC 4256.

Therefore, applying the above common law, the salary or wages derived by the taxpayer would normally be sourced in Singapore as the taxpayer renders the services in respect of employment there. Under paragraph 6-5(3)(a) of the ITAA 1997, this would mean that the salary and wages the taxpayer derives in the present case would not normally be included in the taxpayer's assessable income. However, in determining a foreign resident's liability to Australian tax, it is necessary to consider the Singapore Agreement.

Article 14.1 of the Singapore Agreement provides that remuneration (other than pensions) paid by the public sector organisation to any individual for services rendered to that organisation in the discharge of governmental functions shall be exempt from Singapore tax, except where the individual is resident in Singapore and is not an Australian citizen.

As the taxpayer is an Australian citizen and the salary or wages paid to the taxpayer are remuneration paid by the public sector organisation for services rendered to it in the discharge of governmental functions, the salary or wages shall be exempt from Singapore tax.

Where an article of a tax treaty prevents one of the treaty partners from taxing the relevant amount, the other treaty partner is provided the taxing right over that amount. As Goldberg J held in Chong v. Federal Commissioner of Taxation [2000] FCA 635; 2000 ATC 4315; 44 ATR 295 ( Chong ): Whether one uses the language of allocation of power or the language of limitation of power, the result is the same: there is designated or agreed who shall have the right under the agreement to impose taxation in the particular area.

Therefore, Article 14.1 allocates to Australia the right to tax the salary or wages paid to the taxpayer.

Article 17 of the Singapore Agreement provides for present purposes that any income derived by a resident of Singapore which may be taxed in Australia under Article 14 shall, for the purposes of the laws of Australia relating to its tax, be deemed to arise from sources in Australia. Applying the principle in Chong stated above, the requirement in Article 17 that the income 'may be taxed' in Australia under Article 14 is satisfied in the present case.

Accordingly, the salary or wages the taxpayer derives from employment in Singapore with a public sector organisation are included in his or her assessable income under subsection 6-5(3) of the ITAA 1997 because: • the salary or wages are ordinary income; • the taxpayer is a 'foreign resident'; and • by operation of Article 17 of the Singapore Agreement, the salary or wages have been derived by the taxpayer from Australian sources.