Assessability of salary and wages received by an Australian resident working as a Locally Engaged Staff for the Malaysian Government in Australia

Are the salary and wages income received by an Australian resident taxpayer for services performed for the Malaysian Government as a Locally Engaged Staff (LES) in Australia assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997).

Yes. The salary and wages income received by an Australian resident taxpayer for services performed for the Malaysian Government as a LES in Australia are assessable under subsection 6-5(2) of the ITAA 1997.

The taxpayer is an Australian citizen who is a resident of Australia for tax purposes.

The taxpayer was employed as a LES for the Malaysian Government in Australia.

The taxpayer's employment as a LES involves the discharge of governmental functions for the purposes of Article 18 of Schedule 16 to the International Tax Agreements Act 1953 (the Agreements Act).

The taxpayer exercises the duties of their employment in Australia.

The taxpayer receives salary and wages income from the Malaysian Government in respect of their employment.

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes income derived directly or indirectly from all sources during the income year.

Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining liability to Australian tax on foreign source income it is necessary to consider not only the income tax laws but also any applicable Double Tax Agreements contained in the Agreements Act.

Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so those Acts are read as one.

Schedule 16 to the Agreements Act contains the double tax agreement between Australia and the Government of Malaysia (the Malaysian Agreement). Schedules 16 A and 16B to the Agreements Act contains the Malaysian Protocols amending the Malaysian Agreement (Malaysian Protocols). The Malaysian Agreement and Malaysian Protocols operate to avoid the double taxation of income received by Australian and Malaysian residents.

Article 18(1) of the Malaysian Agreement provides that remuneration (other than a pension or annuity) paid by Malaysia to any individual in respect of services rendered in the discharge of governmental functions shall be taxable only in Malaysia. However, such remuneration shall be taxable only in Australia if the services are rendered in Australia and the recipient is a resident who: (a) is a citizen or national of Australia; or (b) did not become a resident of Australia solely for the purposes of rendering the services.

As the taxpayer is an Australian citizen, is a resident for Australian tax purposes and performs the duties of their employment in Australia, the salary and wages by the taxpayer received from the Malaysian Government are taxable only in Australia under Article 18(1)(a) of the Malaysian Agreement.

Accordingly, the salary and wages received by the taxpayer from the Malaysian Government in respect of services rendered in the discharge of governmental functions in Australia are assessable under subsection 6-5(2) of the ITAA 1997.