ATO Interpretative Decision
ATO ID 2004/758
Income tax
Tax Offset for a low income taxpayer who is a dependant of a member of the US Armed Forces in AustraliaFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is the taxpayer, a dependent of a United States (US) Armed Forces member and to whom subsection 23AA(3) of the Income Tax Assessment Act 1936 (ITAA 1936) applies, entitled to claim the tax offset for certain low income taxpayers available under section 159N of the ITAA 1936?
Decision
Yes. The taxpayer, a dependent of a US Armed Forces member and to whom subsection 23AA(3) of the ITAA 1936 applies, is entitled to claim the tax offset for certain low income taxpayers available under section 159N of the ITAA 1936 where their taxable income is below the relevant threshold.
Facts
The taxpayer is living in Australia with their spouse.
The taxpayer is the spouse of a member of the US Armed Forces who is serving in Australia under the agreement between the Australian Government and the US Government concerning the status of US Armed Forces in Australia (Forces Agreement).
Apart from the operation of subsection 23AA(3) of the ITAA 1936 the taxpayer would be a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936.
The taxpayer's taxable income is less than the relevant threshold for the purposes of section 159N of the ITAA 1936.
Reasons for Decision
Section 23AA of the ITAA 1936 gives legislative effect to certain provisions relating to income tax contained in various agreements Australia has entered into with the US Government, including the Forces Agreement.
Under the Forces Agreement, Australia agreed to exempt the pay of members of the US Armed Forces in Australia. As the pay and allowances of Armed Forces members of any foreign government who are serving in Australia is generally exempt under Item 5 of section 842-105 of the Income Tax Assessment Act 1997 (ITAA 1997), section 23AA ensures that the foreign source income of members of the US Armed Forces and their dependants is exempt from Australian income tax.
Section 23AA achieves this purpose by deeming the persons covered by the relevant agreements and their dependants to be non-residents of Australia for income tax purposes.
Specifically, subsection 23AA(3) of the ITAA 1936 applies where a person:
- (a)
- has been in Australia, or has carried on business in Australia, solely for prescribed purposes during a period when he was a foreign contractor or employee;
- (b)
- has been in Australia solely for prescribed purposes during a period when he was a member of the US Forces, a civilian accompanying the US Forces or a US employee; or
- (c)
- has been in Australia during a period when he was a dependant of such a contractor, employee, member or civilian who was in Australia solely for prescribed purposes,
Subsection 23AA(3) of the ITAA 1936 provides that for the purposes of the ITAA 1936, other than Subdivision A of Division 17, the person is deemed to be a non-resident of Australia during that period, and that period is disregarded in determining whether the person is a resident of Australia at any other time.
The taxpayers' spouse is in Australia for prescribed purposes as the spouse is in Australia to carry out activities pursuant to the Forces Agreement, and the taxpayer is a dependant of their spouse (subsection 23AA(1) of the ITAA 1936).
Accordingly, the taxpayer is deemed to be a non-resident of Australia for income tax purposes for the period they are present in Australia under subsection 23AA(3) of the ITAA 1936. However, this treatment does not apply for the purposes of eligibility for concessional tax offsets provided in Subdivision A of Division 17 of the ITAA 1936.
Section 159N of the ITAA 1936 provides a tax offset to a resident taxpayer whose taxable income is less than the relevant threshold. Section 159N of the ITAA 1936 is set out in Subdivision A of Division 17 of the ITAA 1936.
Accordingly, as the taxpayer is not deemed under subsection 23AA(3) of the ITAA 1936 to be a non-resident of Australia for the purposes of section 159N, and their taxable income is less than the relevant threshold contained in section 159N, they are entitled to the tax offset for certain low income taxpayers.
Year of income: Year ended 30 June 1998 Year ended 30 June 1999 Year ended 30 June 2000 Year ended 30 June 2001 Year ending 30 June 2002 Year ending 30 June 2003
Legislative References:
Income Tax Assessment Act 1936
section 23AA
subsection 23AA(1)
subsection 23AA(3)
section 159N
section 842-105
Keywords
Residence of individuals
Concessional tax offsets
Tax offset for low income taxpayers
ISSN: 1445-2782