Assessability of personal services income derived in Singapore by resident taxpayer

Is the income derived by a resident taxpayer, while working as a jockey in Singapore, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The income derived by a resident taxpayer, while working as a jockey in Singapore, is assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) and the income is not exempt under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

The taxpayer is a resident of Australia for income tax purposes.

The taxpayer is engaged as a jockey in Singapore by a racing club for more than 90 days.

The taxpayer receives fees and race winnings from Singapore.

The taxpayer pays tax on the income in Singapore.

The taxpayer is not in receipt of any salary and wages from Singapore.

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.

Fees and race winnings 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.

Subsection 23AG(7) of the ITAA 1936 defines 'foreign service' as service in a foreign country as the holder of an office or in the capacity of an employee, and 'foreign earnings' to mean income consisting of earnings, salary, wages, commission, bonuses or allowances.

In determining liability to tax to 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 ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

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 or other income derived by an individual who is a resident of Australia in respect of personal (including professional) services shall be taxable in Australia unless the services are performed or exercised in Singapore. If the services are performed or exercised in Singapore, the income may be taxed in Singapore.

Article 18(1) of the Singapore Agreement (substituted by Singapore Protocol) provides that, subject to the provisions of the law of Australia, a credit for any tax paid in Singapore will be allowed against Australian tax payable on income derived from sources in Singapore.

The fees and race winnings derived by the taxpayer as a jockey from Singapore are not exempt from tax under subsection 23AG(1) of the ITAA 1936 as the taxpayer has not been engaged in 'foreign service' as defined under subsection 23AG(7) of the ITAA 1936 because they are not an employee.

As the taxpayer is a resident of Australia for income tax purposes, Article 11(1) of the Singapore Agreement applies.

Accordingly, the fees and race winnings derived by the taxpayer from Singapore will form part of their assessable income under subsection 6-5(2) of the ITAA 1997. The taxpayer will be entitled to a foreign tax credit for Singapore tax paid on that income.