Assessability of employment income received from Singapore under an employer international assignment program

Are the salary and wages received by the Australian resident taxpayer from an Australian resident company while working in the Republic of Singapore (Singapore) under the terms of an employer international assignment program, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The salary and wages received by the Australian resident taxpayer from an Australian resident company while working in Singapore under the terms of an employer international assignment program are assessable under subsection 6-5(2) of the ITAA 1997.

The taxpayer is an Australian resident for income tax purposes.

The taxpayer is employed as an Information Technology consultant by an Australian resident company.

Under the terms of a Letter of Assignment with the employer, the taxpayer agrees to a short term assignment in Singapore as a Project Consultant for a related entity of the employer, a Singapore resident entity.

The Australian resident company agrees to pay the salary including reimbursements of various expenses incurred by the taxpayer during the assignment period.

The related Singaporean entity is not a permanent establishment of the Australian resident employer.

The services provided in Singapore by the taxpayer are for the benefit of the Singapore resident entity.

The taxpayer is present in Singapore less than 183 days.

The taxpayer receives salary and wages from the Australian resident employer while on assignment in Singapore.

The taxpayer pays Singapore tax on the salary and wages.

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 it is not included in 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 Income Tax Assessment Act 1936 (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 from foreign service will be exempt from tax in Australia. 'Foreign service' includes service in a foreign country in the capacity of 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 reasons listed. One of the listed reasons is where the income earned by the resident in the foreign country is made exempt by the operation of a double tax agreement (paragraph 23AG(2)(b) of the ITAA 1936).

Therefore, 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.

Schedule 5 to the Agreements Act contains the double tax agreement between Australia and Singapore (the Singapore Agreement). Schedule 5A to the Agreements Act contains the Protocol amending the Singapore Agreement (the Singapore Protocol). The Singapore Agreement and the Singapore Protocol operate to avoid the double taxation of income received by Australian and Singaporean residents.

Article 11(1) of the Singapore Agreement provides that remuneration derived by an Australian resident in respect of personal (including professional) 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 11(1) of the Singapore Agreement is subject to Article 12 (1) of the Singapore Agreement. Article 12(1) of the Singapore Agreement provides that remuneration derived by a Australian resident in respect of personal (including professional) services performed or exercised in Singapore shall be exempt from tax in Singapore 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 (Article 12(1)(a)); • the services are performed or exercised for or on behalf of a person who is a resident of Australia (Article 12(1)(b)); 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)(c)).

Even though the services provided in Singapore by the taxpayer were for the benefit of the Singapore entity, the remuneration received by the taxpayer was in respect of personal (including professional) services performed or exercised for or on behalf of the Australian resident employer.

The remuneration received by the taxpayer in respect of personal (including professional) services performed or exercised in Singapore is exempt from tax in Singapore under Article 12(1) of the Singapore Agreement as: • the taxpayer was present in Singapore for a period or periods not exceeding in the aggregate 183 days in the Singapore year of income; • the services were performed or exercised for or on behalf of an Australian resident company; and • the employer company had no permanent establishment in Singapore for the remuneration to be deductible in determining the profits for Singapore tax purposes.

Paragraph 23AG(2)(b) of the ITAA 1936 applies, as the salary and wages are exempt from tax in Singapore under Article 12(1) of the Singapore Agreement.

Accordingly, the salary and wages received by the taxpayer in Singapore will not be exempt from tax under subsection 23AG(1) of the ITAA 1936 and are assessable income under subsection 6-5(2) of the ITAA 1997.