ATO ID 2005/125: Assessability of Australian sourced interest income derived by a resident of Singapore and of Australia
Date of decision: 1 July 2004
Year of income: Year ended 30 June 2004 Year ending 30 June 2005
Business line: Public Groups and International

Issue
Is the Australian sourced interest income derived by a taxpayer who is a resident of Singapore and of Australia assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. The Australian sourced interest income derived by a taxpayer who is a resident of Singapore and of Australia is assessable under subsection 6-5(2) of the ITAA 1997.

Facts
The taxpayer is a citizen of Singapore and a resident of Singapore for tax purposes. The taxpayer is a resident of Australia for income tax purposes. The taxpayer is treated solely as a Singapore resident on application of the residency tests (tie breaker tests) contained in Article 3 of Schedule 5 to International Tax Agreements Act 1953 (Agreements Act). The taxpayer derives interest income from Australian sources.

Reasons for decision
Summary: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes all the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the year of income. In determining liability to Australian tax on Australian sourced income, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the Agreements Act. Section 4 of the Agreements Act incorporates that Act with 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 to the Singapore Agreement (the Singapore Protocol). The Singapore Agreement and the Singapore Protocol operates to avoid the double taxation of income received by Australian and Singaporean residents. Article 9(1) of the Singapore Agreement provides that Australian tax on interest derived by a Singaporean resident shall not exceed 10% of the gross amount of interest. Paragraph 66 of Taxation Ruling TR 98/17 states that where the tie breaker tests are used in determining the residence of an individual to a treaty partner country, the terms of the relevant double tax agreement should be referred to in determining the tax liability. TR 98/17 also states that where the tie breaker tests are used in determining the residence of an individual to a treaty partner country, the Australian resident status is not lost for the operation of the ITAA 1997 and the individual continues to be eligible, for example, for the tax-free threshold in respect of the Australian sourced income. Even though the taxpayer is a Singapore resident under the tie breaker tests, the taxpayer's Australian resident status is not lost for the operation of the ITAA 1997. The interest income derived by the taxpayer from Australian sources is taxable in Australia under Article 9(1) of the Singapore Agreement and the tax shall not exceed 10 per centum of the gross amount of the interest. Accordingly, the interest derived by the taxpayer is assessable under subsection 6-5(2) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 6-5(2)
Related public rulings and determinations: Taxation Ruling TR 98/17
Related ATO interpretative decisions: ATO ID 2004/308 | ATO ID 2005/123 | ATO ID 2005/124
Subject references: Double tax agreements Interest income Singapore Foreign income