ATO Interpretative Decision

ATO ID 2004/603 (Withdrawn)

Income Tax

• This ATO ID has been withdrawn from the database due to legislative changes with effect from 1 July 2009. Despite its withdrawal, this ATOID continues to be a precedential view in respect of decisions for income years up to, and including, the 2008/2009 income year.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are the salary and wages received by a resident taxpayer from serving as part of the Multinational Force & Observers (MFO) in Egypt as a member of the Australian Defence Force (ADF) assessable under subsection 25(1) of the Income Tax Assessment Act 1936 (ITAA 1936) or subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. The salary and wages received by a resident taxpayer from serving as part of the MFO in Egypt as an ADF member are not assessable under subsection 25(1) of the ITAA 1936 or subsection 6-5(2) of the ITAA 1997 as the salary and wages are exempt under section 23AG of the ITAA 1936.

Facts

The taxpayer is an Australian resident for income tax purposes.

The taxpayer is a member of the ADF.

The taxpayer served in the Sinai, Egypt as part of the MFO.

The role of the MFO is to supervise the implementation of the security provisions of the Egyptian - Israeli Treaty of Peace. Australia renewed it's commitment to the MFO in January 1993 which is ongoing.

The taxpayer served for a continuous period of not less than 91 days.

The taxpayer received salary and wages from the ADF.

A certificate under paragraph 23AD(1)(a) of the ITAA 1936 has not been issued by the Chief of the Defence Force to the effect that the taxpayer is on eligible duty with a specified organisation in a specified area outside Australia.

The laws of Egypt provide for the imposition of income tax on employment income and do not generally exempt such income from income tax.

The Government of Australia and the MFO concluded the 'Exchange of Letters constituting an Agreement concerning Australian Participation in the Multinational Force and Observers, and related document' which entered into force on 17 March 1982 and the 'Exchange of Letters constituting an Agreement between the Government of Australia and the Multinational Force and Observers to amend the Agreement concerning Australian Participation in the Multinational Force and Observers of 16 March 1982' which entered into force on 1 December 1983.

These agreements do not provide an exemption from income tax in Egypt on salary and wages received by Australian MFO personnel.

Reasons for Decision

Subsection 25(1) 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. For the years commencing 1 July 1997 and onwards, the equivalent section is subsection 6-5(2) of the ITAA 1997.

Salary and wages are ordinary income for the purposes of subsection 25(1) of the ITAA 1936 and subsection 6-5(2) of the ITAA 1997.

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 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 the exemption in subsection 23AG(1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the following reasons:

(a)

a law of the foreign country giving effect to a double tax agreement

(b)

a double tax agreement

(c)

provisions of a law of the foreign country under which income covered by any of the following categories is generally exempt from income tax:

(i)

income derived in the capacity of an employee

(ii)

income from personal services

(iii)

similar income

(d)

the law of the foreign country does not provide for the imposition of income tax on one or more of the categories of income mentioned in paragraph (c)

(e)

a law of the foreign country corresponding to the International Organizations (Privileges and Immunities) Act 1963 or to the regulations under that Act

(f)

an international agreement to which Australia is a party and that deals with:

(i)

diplomatic or consular privileges and immunities;

(ii)

privileges and immunities in relation to persons connected with international organisations;

(g)

a law of the foreign country giving effect to an agreement covered by paragraph (f).

There is no double tax agreement between Australia and Egypt. Therefore, paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936 do not apply.

As the laws of Egypt provide for the imposition of income tax on employment income and do not generally exempt such income from income tax, paragraph 23AG(2)(c) and 23AG(2)(d) of the ITAA 1936 do not apply.

The salary and wages received by the taxpayer were not exempt in Egypt because of a law (or regulations) corresponding to the International Organizations (Privileges and Immunities) Act 1963 and as such paragraph 23AG(2)(e) of the ITAA 1936 does not apply.

The salary and wages received by the taxpayer were not exempt in Egypt under an international agreement to which Australia is a party that deals with privileges and immunities of persons connected with international organisations or relating to diplomatic or consular matters.

While the agreements to which Australia was a party are international agreements for the purposes of international law, the MFO personnel are not connected with an international organisation (such as the United Nations) and as such paragraphs 23AG(2)(f) and 23AG(2)(g) of the ITAA 1936 do not apply. In any event, the agreements do not provide that the salary and wages earned by MFO personnel are exempt in Egypt.

Therefore, as none of the reasons listed in subsection 23AG(2) of the ITAA 1936 apply, the salary and wages received by the ADF member from serving in Egypt as part of the MFO will be exempt from income tax under subsection 23AG(1) of the ITAA 1936 and will not be assessable under subsection 25(1) of the ITAA 1936 or subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ended 30 June 1993

Legislative References:
Income Tax Assessment Act 1936
   paragraph 23AD(1)(a)
   section 23AG
   subsection 23AG(1)
   subsection 23AG(2)
   paragraph 23AG(2)(a)
   paragraph 23AG(2)(b)
   paragraph 23AG(2)(c)
   paragraph 23AG(2)(d)
   paragraph 23AG(2)(e)
   paragraph 23AG(2)(f)
   paragraph 23AG(2)(g)
   subsection 23AG(7)
   subsection 25(1)

Keywords
Defence force members
Defence force overseas service
Egypt
Foreign income
Foreign salary & wages
Income
International tax

Business Line:  Public Groups and International

Date of publication:  23 July 2004

ISSN: 1445-2782