ATO Interpretative Decision

ATO ID 2004/821 (Withdrawn)

Income Tax

• This ATO ID is withdrawn from the database due to legislative changes to section 23AG of the Income Tax Assessment Act 1936 which took effect from 1 July 2009. Despite its withdrawal, this ATO ID 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 an ADF member from serving in Bosnia and Herzegovina with Operation OSIER as part of Australia's contribution to SFOR 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 an ADF member from serving in Bosnia and Herzegovina with Operation OSIER as part of Australia's contribution to SFOR 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 a resident of Australia for income tax purposes.

The taxpayer is a member of the ADF.

The taxpayer served in Bosnia and Herzegovina as part of Operation OSIER.

Operation OSIER concerns the deployment of ADF members to serve in Bosnia and Herzegovina as part of Australia's contribution to the North Atlantic Treaty Organization (NATO) Stabilisation Force (SFOR). Operation OSIER commenced in March 1997 and is ongoing.

The taxpayer served in Bosnia and Herzegovina for a continuous period of not less than 91 days.

The taxpayer received salary and wages 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 is on eligible duty with a specified organisation in a specified area outside Australia.

There is no double tax agreement between Australia and Bosnia and Herzegovina.

The law of Bosnia and Herzegovina 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 are not exempt in Bosnia and Herzegovina because of a law (or regulations) corresponding to the International Organizations (Privileges and Immunities) Act 1963 or under an international agreement to which Australia is a party that deals with privileges and immunities relating to diplomatic or consular matters or of persons connected with international organisations.

In relation to the latter, the administrative process by which Australia participated in SFOR did not result in Australia becoming a party to an international agreement concerning SFOR.

Reasons for Decision

Paragraph 25(1)(a) 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. For the years commencing 1 July 1997 onwards, the equivalent provision is subsection 6-5(2) of the ITAA 1997.

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

Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.

Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23AG of the ITAA 1936 which deals with overseas employment income.

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 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).

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

The law of Bosnia and Herzegovina provides for the imposition of income tax on employment income and does not generally exempt such income from income tax. Therefore, paragraphs (c) and (d) of subsection 23AG(2) of the ITAA 1936 do not apply.

The salary and wages received by the taxpayer were not exempt in Bosnia and Herzegovina because of a law (or regulations) of Bosnia and Herzegovina 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 process by which Australia participated in SFOR did not result in Australia becoming a party to an international agreement concerning SFOR.

Therefore, paragraphs (f) and (g) of subsection 23AG(2) of the ITAA 1936 do not apply.

As none of the reasons listed in subsection 23AG(2) of the ITAA 1936 apply, the salary and wages received by an ADF member from serving in Bosnia and Herzegovina with Operation OSIER as part of Australia's contribution to SFOR 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 or subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ended 30 June 1998

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
Bosnia
Defence force overseas service
Exempt income
Foreign income
Foreign salary & wages

Business Line:  Public Groups and International

Date of publication:  15 October 2004

ISSN: 1445-2782