ATO Interpretative Decision
ATO ID 2006/191
Income Tax
Assessability of salary and wages received by an Australian Defence Force (ADF) member from service in the Solomon IslandsFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Are the foreign earnings derived by an ADF member from service in the Solomon Islands on a specific deployment during the 1991-92, 1992-93 and 1993-94 years of income assessable under paragraph 25(1)(a) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. The foreign earnings derived by an ADF member from serving in the Solomon Islands on a specific deployment during the 1991-92, 1992-93 and 1993-94 years of income are not assessable under paragraph 25(1)(a) of the ITAA 1936 as the foreign earnings are exempt from tax in Australia under section 23AG of the ITAA 1936.
Facts
The taxpayer is a resident of Australia.
The taxpayer is an ADF member serving in the Solomon Islands on a specific deployment.
The taxpayer submitted a Declaration of Solomon Islands Service document for each of the relevant income years in respect of foreign earnings derived from service in the Solomon Islands.
The taxpayer's position was one aspect of the Defence Co-operation program which is an assistance arrangement between the International Policy Division of the Australian Department of Defence and the Solomon Islands Government. This program was initiated in 1990 and finished in 1997.
There is no tax treaty between Australia and the Solomon Islands.
The law of the Solomon Islands provides for the imposition of income tax on employment income and does not generally exempt such income from income tax.
The Australian and the Solomon Island governments signed a Memorandum of Understanding (MOU) which among other things covered the services provided by members of the ADF as part of the Survey and Mapping Assistance project.
The MOU provides for exemption from Solomon Islands tax on salary and wages received by ADF members engaged on the project.
Reasons for Decision
Paragraph 25(1)(a) of the ITAA 1936 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 paragraph 25(1)(a) of the ITAA 1936.
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 that service will be exempt from tax in Australia. 'Foreign service' includes service in a foreign country in the capacity as an employee and 'foreign earnings' includes income consisting of salary and wages (subsection 23AG(7) of the ITAA 1936).
Subsection 23AG(2) of the ITAA 1936 provides that no exemption is available under subsection 23AG(1) of the ITAA 1936 in circumstances where an amount of foreign earnings derived in a foreign country is exempt from tax in the foreign country solely because of:
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- a double tax agreement or law of a country that gives effect to such an agreement (paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936)
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- a law of that foreign country which generally exempts from, or does not provide for, the imposition of tax on income derived in the capacity of an employee, income from personal services or any other similar income (paragraphs 23AG(2)(c) and 23AG(2)(d) of the ITAA 1936), and
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- a law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations (paragraphs 23AG(2)(e), 23AG(2)(f) and 23AG(2)(g) of the ITAA 1936).
However, where foreign earnings are exempt from tax in the foreign country because of another reason (for example, a MOU or some similar agreement), subsection 23AG(2) of the ITAA 1936 will not apply to deny the exemption under subsection 23AG(1) of the ITAA 1936. This is because the foreign earnings are not exempt in the foreign country solely because of events listed in that subsection - the foreign earnings are exempt because of the MOU or similar agreement which is not a reason listed in subsection 23AG(2).
To the extent that an ADF member performed service in the Solomon Islands as part of the Survey and Mapping Assistance project, the salary and wages earned by the ADF member are exempt under subsection 23AG(1) of the ITAA 1936 as none of the circumstances in subsection 23AG(2) of the ITAA 1936 apply.
Further, as the exemption from Solomon Islands tax provided for by the MOU does not fall within any of the categories excluding exemption under subsection 23AG(2) of the ITAA 1936, subsection 23AG(1) of the ITAA 1936 exempts the salary and wages earned by ADF members deployed to the Solomon Islands during the period of the MOU.
Accordingly, the salary and wages received by an ADF member from serving in the Solomon Islands as part of the Survey and Mapping Assistance project will be exempt from income tax under subsection 23AG(1) of the ITAA 1936 and will not be assessable under paragraph 25(1)(a) of the ITAA 1936.
The foreign earnings of ADF members that are exempt from Australian tax under section 23AG of the ITAA 1936 are nevertheless taken into account in calculating the Australian tax on other assessable income derived by the members.
Tax will be calculated by applying to the non-exempt income (for example, Australian salary, investment income), the notional average rate of tax payable on the sum of exempt income and non-exempt income.
Date of decision: 27 July 2006Year of income: Year ended 30 June 1992 Year ended 30 June 1993 Year ended 30 June 1994
Legislative References:
Income Tax Assessment Act 1936
section 23AG
paragraph 25(1)(a)
Related Public Rulings (including Determinations)
Class Ruling CR 2001/33
Class Ruling CR 2003/61
Class Ruling CR 2003/94
Taxation Ruling TR 96/15
ATO ID 2005/161
ATO ID 2005/162
Keywords
Foreign salary & wages
International tax
Solomon Islands
Exempt income
Defence force members
Defence force overseas service
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 27 July 2006 | Original statement |
| 25 March 2011 | Archived |