ATO ID 2005/124: Assessability of fellowship income received by a Singapore national whilst undergoing training in 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 fellowship income from Singapore received by a taxpayer, who is a resident of Singapore and of Australia, assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. The fellowship income from Singapore received by a taxpayer, who is a resident of Singapore and of Australia, is not assessable income 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 also a resident of Australia for income tax purposes. The taxpayer will be present in Australia for training for approximately 12 months. The taxpayer lives in a rented apartment whilst in Australia. The taxpayer previously lived with their family in Singapore. The taxpayer is employed by a Singapore government department. The taxpayer receives an award fellowship payment from a Singapore government department whilst training in Australia.

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. Fellowship income is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. In determining liability to Australian tax on foreign sourced income 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 (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 operate to avoid the double taxation of income received by Australian and Singaporean residents. Article 3 of the Singapore Agreement provides tests of residency which are used where the individual would otherwise be a resident of both countries (tie breaker tests). The tiebreaker tests ensure that the individual is only treated as a resident of one country for the purposes of working out liability to tax on their income. Article 3(2) of the Singapore Agreement provides that where an individual is both a Singapore resident and an Australian resident, the individual shall be treated solely as a Singapore resident using the following tests: The terms 'permanent home', 'habitual abode' and 'personal and economic relations' are undefined. Article 3(2) of the Singapore Agreement provides that any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the domestic laws of each country. Taxation Ruling TR 2001/13 discusses the Commissioner's views about interpreting double tax agreements. Paragraph 104 states that the Commentaries on OECD Model Tax Convention on Income and on Capital (OECD Commentary) provide important guidance on interpretation and application of the OECD Model and will often need to be considered, as a matter of practice, in interpreting double tax agreements, at least where the wording is ambiguous. The OECD Commentary provides that in relation to a 'permanent home': The taxpayer has a permanent home available to them in Singapore and in Australia. The taxpayer also has an habitual abode in Singapore and in Australia. However, as the taxpayer's personal and economic ties are closest to Singapore, the taxpayer is treated as a resident of Singapore for the purposes of applying the Singapore Agreement. Article 15 of the Singapore Agreement provides that when a student or trainee who is a resident of Singapore, or was a resident of Singapore immediately before visiting Australia, and who is present in Australia solely for the purposes of their education or training receives payments from sources outside Australia for the purpose of their maintenance, education or training, those payments will not be taxed in Australia. Article 14(2) of the Singapore Agreement provides remuneration (other than pensions) paid by the Government of Singapore to any individual for services rendered to that Government in the discharge of governmental functions shall be exempt from Australian tax, except where the individual is a resident of Australia and is not a Singapore resident. Article 15 of the Singapore Agreement will not apply as the taxpayer is not a student or a business apprentice or trainee. The fellowship income received by the taxpayer from the Singapore Government department is exempt from tax under Article 14(2) of the Singapore Agreement as the taxpayer is a resident of Singapore and the payment is for services rendered in the discharge of governmental functions. Accordingly, the fellowship income will not be assessable income 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 2001/13
Related ATO interpretative decisions: ATO ID 2005/123 | ATO ID 2005/125
Subject references: Scholarships, fellowships & bursaries Double tax agreements Foreign income International tax Singapore