ATO Interpretative Decision

ATO ID 2004/728 (Withdrawn)

Income tax

• This ATO ID is withdrawn from the database due to commencement of the Income Tax Assessment Act 1997 in the 1997/1998 income year and legislative changes to section 23AG of the Income Tax Assessment Act 1936 which took effect from 1 July 2009.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are the salary and wages received by an ADF member from serving in Western Sahara with Operation CEDILLA as part of Australia's contribution to MINURSO assessable under subsection 25(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

No. The salary and wages received by a resident taxpayer from serving in Western Sahara as an ADF member with Operation CEDILLA as part of Australia's contribution to MINURSO are not assessable under subsection 25(1) of the ITAA 1936 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 Western Sahara as part of Operation CEDILLA.

Operation CEDILLA concerned the deployment of ADF members to serve in Western Sahara as part of Australia's contribution to MINURSO between 27 June 1991 and 31 December 1994.

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

The taxpayer received salary and wages from the ADF in relation to that service.

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 was on eligible duty with a specified organisation in a specified area outside Australia.

The Australian Government recognises that the Government of Morocco exercised de facto administrative control over Western Sahara during the period that ADF members were deployed to Western Sahara as part of MINURSO, which includes the application of Moroccan law to Western Sahara.

There is no double tax agreement between Australia and Morocco.

The law of Morocco provides for the imposition of income tax on employment income and does not generally exempt such income from income tax.

The salary and wages received by the taxpayer were not exempt because of a law (or regulations) of Morocco corresponding to the International Organizations (Privileges and Immunities) Act 1963.

The salary and wages received by the taxpayer were not exempt because of a law or international agreement to which Australia was a party which deals with diplomatic privileges and immunities or with persons connected with international organisations.

Reasons for Decision

Subsection 25(1) of the ITAA 1936 provides that the assessable income of a resident taxpayer includes gross income derived directly or indirectly from all sources during the income year which is not exempt income.

Salary and wages are ordinary income for the purposes of subsection 25(1) of the ITAA 1936.

However, 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 foreign service will be exempt from tax in Australia. 'Foreign service' includes service in a foreign country in the capacity of 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).

None of the circumstances set out in subsection 23AG(2) of the ITAA 1936 apply.

Therefore, the salary and wages received by an ADF member from serving in Western Sahara with Operation CEDILLA as part of Australia's contribution to MINURSO 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.

Year of income:  Year ended 30 June 1991 Year ended 30 June 1992 Year ended 30 June 1993 Year ended 30 June 1994 Year ended 30 June 1995

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)
   subparagraph 23AG(2)(f)(ii)
   paragraph 23AG(2)(g)
   subsection 23AG(7)
   subsection 25(1)

Keywords
Defence force members
Defence force overseas service
Foreign income
Foreign salary & wages
Income
International tax
Morocco
Western Sahara

Business Line:  Public Groups and International

Date of publication:  3 September 2004

ISSN: 1445-2782