Assessability of income received by an Australian resident from independent personal services in Vietnam

Is the income received by an Australian resident taxpayer from independent personal services performed in Vietnam assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. Income received by a taxpayer from independent personal services performed in Vietnam is assessable under subsection 6-5(2) of the ITAA 1997.

The taxpayer is an Australian resident for tax purposes.

The taxpayer provided short-term consultancy services in Vietnam.

The income received by the taxpayer was not subject to tax in Vietnam.

Subsection 6-5(2) of the ITAA 1997 provides that assessable income of an Australian resident includes the ordinary income derived from all sources, whether in or out of Australia, during the income year.

Income from professional services is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining the liability to Australian tax on foreign sourced income received by a resident, it is necessary to consider not only the income tax laws but also any applicable double tax treaty contained in the International Tax Agreements Act 1953 (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 that those Acts are read as one. In the event of inconsistent provisions, the Agreements Act overrides the ITAA 1936 and ITAA 1997.

Article 14(1) of the Vietnamese Agreement provides that income derived by an individual who is a resident of Australia in respect of professional services or other independent activities of a similar character shall be taxable only in Australia unless a fixed base is regularly available to the individual in Vietnam for the purpose of performing the individual's activities. If such a fixed based is available to the individual, the income may be taxed in Vietnam but only so much of it as is attributable to the activities exercised from that fixed base.

It is considered that the contract income derived by the taxpayer in Vietnam constitutes 'professional services' as defined under Article 14(2) of the Vietnamese Agreement.

As the taxpayer is a resident of Australia for Australian income tax purposes, professional services income derived by the taxpayer in Vietnam shall be taxable in Australia pursuant to Article 14(1) of the Vietnamese Agreement.

Accordingly, the income derived by the Australian resident taxpayer as a short-term consultant in Vietnam is assessable under subsection 6-5(2) of the ITAA 1997.