ATO Interpretative Decision

ATO ID 2010/165

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are APS employees of the Department of Defence deployed by the Commonwealth outside Australia as part of multilateral military, policing or peacekeeping forces, who have the status of 'defence civilians' within the meaning of that term in the Defence Force Discipline Act 1982 (DFDA 1982), deployed as members of a 'disciplined force' within paragraph 23AG(1AA)(d) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

Yes, APS employees of the Department of Defence deployed by the Commonwealth outside Australia as part of multilateral military, policing or peacekeeping forces, who have the status of 'defence civilians' within the meaning of that term in the DFDA 1982, are deployed as members of a 'disciplined force' within paragraph 23AG(1AA)(d) of the ITAA 1936.

Facts

The taxpayers are residents of Australia for income tax purposes.

The taxpayers are APS employees of the Department of Defence (persons engaged under the Public Service Act 1999).

The taxpayers received deployment orders from the Commonwealth for the purpose of performing operational support roles in a specified area outside Australia to support Defence operations.

For the duration of the deployment, the taxpayers were subject to Australian Defence Force (ADF) command and control.

The taxpayers consented in writing to subject themselves to Defence Force discipline during the deployment and each had the status of a 'defence civilian' under the DFDA 1982.

Under section 3 of the DFDA 1982 'defence civilian' is defined to mean:

a person (other than a defence member) who

(a)

with the authority of an authorized officer, accompanies a part of the Defence Force that is:

(i)

outside Australia; or

(ii)

on operations against the enemy; and

(b)

has consented, in writing, to subject himself or herself to Defence Force discipline while so accompanying that part of the Defence Force.

The Department of Defence paid each of the taxpayers a salary and operational support allowance for the duration of the deployment.

This foreign service was performed on or after 1 July 2009 and the earnings from this foreign service were derived on or after 1 July 2009.

Reasons for Decision

Subsection 23AG(1) of the ITAA 1936 provides that, where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from this foreign service are exempt from Australian tax. However, new subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that those foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to, amongst other things, the individual's deployment outside Australia as a member of a disciplined force.

Foreign deployment as a member of a disciplined force

Specifically, subsection 23AG(1AA) of the ITAA 1936 relevantly states:

However, those foreign earnings are not exempt from tax under this section unless the continuous period of foreign service is directly attributable to any of the following:

...

(d)

the person's deployment outside Australia as a member of a disciplined force by:

(i)

the Commonwealth, a State or a Territory; or

(ii)

an authority of the Commonwealth, a State or a Territory

The expression 'disciplined force' is not defined in the ITAA 1936 or in the Income Tax Assessment Act 1997 (ITAA 1997). However, the Explanatory Memorandum (EM) which accompanied Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009 introducing paragraph 23AG(1AA)(d) of the ITAA 1936 provides some guidance on this (see subparagraph 15AB(1)(b)(i) and paragraph 15AB(2)(e) of the Acts Interpretation Act 1901). It relevantly states:     Foreign deployment as a member of a disciplined force

1.31 A person's foreign earnings will be eligible for exemption if the foreign service is directly attributable to that person's deployment outside Australia as a member of a disciplined force by an Australian government, or an authority thereof. A disciplined force is intended to refer to a defence force, including a peacekeeping force, and a police force.

1.32 In a defence force context, the exemption would apply to a person's deployment outside Australia as part of a non-warlike operation. In a police force context, the exemption would apply to Australian Federal Police employees deployed on an International Deployment Group mission who are subject to Commander's Orders to achieve operational policing outcomes. [Schedule 1, item 1, paragraph 23AG(1AA)(d)]

(Emphasis added.)

The Second Reading Speech to Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009 in the House of Representatives provides some additional guidance (see subparagraph 15AB(1)(b)(i) and paragraph 15AB(2)(f) of the Acts Interpretation Act 1901). In this speech, the Treasurer relevantly stated:

From 1 July 2009, an exemption will apply to income earned as an aid worker, a charitable worker or under certain types of government employment such as a defence or police deployment . It will also apply to income earned as prescribed under regulations.

(Emphasis added.)

Some assistance is also afforded by The Macquarie Dictionary, which relevantly defines the word 'discipline' as follows:

1.

training to act in accordance with rules; drill: military discipline.

...

5.

subjection to rules of conduct of behaviour; a state of order maintained by training and control: good disciplined in an army.

...

6.

a set or system of rules and regulations.

Further assistance is provided by the broader statutory context (see Cooper Brookes (Wollongong) Pty Ltd v. Federal Commissioner of Taxation (1981) 147 CLR 297; 81 ATC 4792; (1981) 11 ATR 949). Specifically, subject to certain conditions, section 23AD of the ITAA 1936 exempts the pay and allowances earned on overseas duty of a person serving as a 'member of the Defence Force'. The use of capitals in this cognate provision reveals that the words 'Defence Force' do not bear their ordinary meaning but one coming from the Defence Act 1903. It indicates that the exemption in section 23AD of the ITAA 1936 is confined to persons appointed or enlisted as members of the Australian Navy, Army and Air Forces within section 30 of the Defence Act 1903 (see Case T39 86 ATC 330; (1986) 29 CTBR (NS) Case 51). Accordingly, the use of a different phrase in lower case in paragraph 23AG(1AA)(d) of the ITAA 1936 - 'disciplined force' - suggests that it has a broader meaning. It suggests that exemption pursuant to paragraph 23AG(1AA)(d) of the ITAA 1936 is not confined to Defence Force members. Otherwise, paragraph 23AG(1AA)(d) of the ITAA 1936 would unnecessarily cover the same ground as section 23AD of the ITAA 1936 or have no work to do, something the legislature is unlikely to have intended (see Minister for Resources v. Dover Fisheries Pty Ltd (1993) 43 FCR 565). This is confirmed in the second sentence of paragraph 1.31 of the EM by the use of the words 'defence', 'peacekeeping' and 'police' - all in lower case - to describe the particular force to which paragraph 23AG(1AA)(d) of the ITAA 1936 is intended to apply.

The language used in the provision, the EM, Second Reading Speech, and statutory context of paragraph 23AG(1AA)(d) of the ITAA 1936 therefore reveals that a 'disciplined force' within paragraph 23AG(1AA)(d) of the ITAA 1936 is an organisationally coherent and identifiable body of persons forming a defence, peacekeeping or police force. Such a force may or may not be multilateral and is tasked with the maintenance or establishment of law and order, stability and/or security.

The members of such a force will commonly, but not necessarily, be subjected to a common command structure and rules of conduct. Such a force will generally include persons who perform adjunctive roles relating to the overseas deployment. A 'disciplined force' will thus comprise persons specifically performing the defence, policing and peacekeeping functions of the deployment but will also include those accompanying and providing assistance and support to those so engaged. Persons providing such ancillary support will be considered part of the 'disciplined force' provided they are effectively integrated into the force performing the primary functions of defence, peacekeeping and policing.

These people will be so integrated into the primary force where they are subject to the same or similar command structure and rules of conduct as those performing the primary functions of that 'disciplined force'.

As the employees of the Department of Defence are providing auxiliary support to those performing the primary defence functions of the deployment and are integrated into this force, because they are subject to Defence Force discipline as 'defence civilians', they will be members of a 'disciplined force' within paragraph 23AG(1AA)(d) of the ITAA 1936.

Year of income:  Year ended 30 June 2010

Legislative References:
Income Tax Assessment Act 1936
   section 23AD
   section 23AG
   subsection 23AG(1)
   subsection 23AG(1AA)
   paragraph 23AG(1AA)(d)

Case References:
Cooper Brookes (Wollongong) Pty Ltd v. Federal Commissioner of Taxation
   (1981) 147 CLR 297
   81 ATC 4792
   (1981) 11 ATR 949

Related ATO Interpretative Decisions
ATO ID 2010/51
ATO ID 2010/80
ATO ID 2010/118

Other References:
Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No.1) Bill 2009
Pearce, DC, Geddes, RS, 2006, Statutory interpretation in Australia, 6th edn, LexisNexis Butterworths, Chatswood.

Keywords
International tax
Income
Foreign income
Foreign salary & wages
Exempt income

Business Line:  Small Business/Individual Taxpayers

Date of publication:  24 September 2010

ISSN: 1445-2782