Issue
Are the salary and wages received by an Australian resident taxpayer from employment in Singapore assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The salary and wages received by an Australian resident taxpayer from employment in Singapore are not assessable under subsection 6-5(2) of the ITAA 1997 as they are exempt from tax under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936).
Facts
The taxpayer is a resident of Australia for income tax purposes.
The taxpayer is employed in Singapore territorial waters by a company that is a resident of Singapore.
The taxpayer receives salary and wages income from that employment.
The taxpayer was employed offshore in Singapore for less than 183 days.
The taxpayer has been engaged in continuous foreign service for not less than 91 days.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.
Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23AG of the ITAA 1936 which deals with overseas employment income.
Subsection 23AG(1) of the ITAA 1936 provides that where a resident taxpayer is engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived will be exempt from tax in Australia. 'Foreign service' includes service in a foreign country in the capacity as an employee and 'foreign earnings' includes income consisting of salary and wages (subsection 23AG(7) of the ITAA 1936).
However, subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG(1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the exclusions listed therein.
Under paragraph 23AG(2)(b) of the ITAA 1936, where income is exempt from income tax in the foreign country as a result of the operation of a double tax agreement, that income is not exempt under subsection 23AG(1) of the ITAA 1936.
In determining the liability to Australian tax on foreign sourced income received by a resident taxpayer it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).
Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that those Acts are read as one.
Schedule 5 to the Agreements Act contains the double tax agreement between Australia and the Republic of Singapore (the Singapore Agreement). Schedule 5A to the Agreements Act contains the protocol amending the Singapore Agreement (the Singapore Protocol). The Singapore Agreement and Singapore Protocol operate to avoid the double taxation of income received by Australian and Singapore residents.
Article 11(1) of the Singapore Agreement provides that remuneration derived by an Australian resident in respect of personal services will be taxable only in Australia unless the services are performed or exercised in Singapore. If the services are performed or exercised in Singapore, the remuneration may be taxed in Singapore.
However, Article 12(1) of the Singapore Agreement provides that remuneration derived by a Australian resident in respect of personal services performed or exercised in Singapore will be taxable only in Australia if: • the taxpayer is present in Singapore for a period or periods not exceeding in the aggregate 183 days in the Singapore year of income or in the basis period for the year of assessment; • the services are performed or exercised for or on behalf of a person who is a resident of Australia; and • the remuneration is not deductible in determining the profits for Singapore tax purposes of a permanent establishment in Singapore of that person.
Article 12(1) of the Singapore Agreement will not apply as the taxpayer's employer is a resident of Singapore.
Therefore, the taxpayer's salary and wages may be taxed in Australia and in Singapore under Article 11(1) of the Singapore Agreement. Paragraph 23AG(2)(b) of the ITAA 1936 will not apply as the salary and wages received by the taxpayer are not exempt from tax in Singapore.
As the taxpayer is engaged in foreign service for a continuous period of not less than 91 days and the salary and wages are not exempt from tax in Singapore under the Singapore Agreement, the salary and wages received from Singapore will be exempt from tax under subsection 23AG(1) of the ITAA 1936.
Therefore, the salary and wages received by the taxpayer from employment in Singapore will not be assessable under subsection 6-5(2) of the ITAA 1997.