ATO Interpretative Decision

ATO ID 2004/84 (Withdrawn)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• This ATO ID has been withdrawn from the database due to legislative changes with effect from 1 July 2009.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 an Australian resident taxpayer while working on a project in Nauru assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The salary and wages received by an Australian resident taxpayer while working on a project in Nauru are assessable under subsection 6-5(2) of the ITAA 1997 as the salary and wages are not exempt under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) or section 23AF of the ITAA 1936.

Facts

The taxpayer is a resident of Australia for income tax purposes.

The taxpayer is employed under a contract for work to be performed in Nauru.

The taxpayer is participating in a project that has not been approved by the Minister for Trade.

The law of Nauru does not provide for the imposition of income tax.

Reasons for Decision

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Salary and wages are ordinary income for the purposes of 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 is engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that service will be exempt. 'Foreign service' includes service in a foreign country in the capacity as an employee (subsection 23AG(7) of the ITAA 1936). 'Foreign earnings' includes salary and wages income (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 tax in the foreign country only because of any of the reasons listed therein.

One of the reasons listed is where the income is exempt in the foreign country because of a double tax agreement (paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936).

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

Paragraph 23AG(2)(d) of the ITAA 1936 lists a further exception that applies where the income is exempt in the foreign country because the law of the foreign country does not provide for the imposition of income tax on one or more of the following categories of income:

(i)

income derived in the capacity of an employee

(ii)

income from personal services, or

(iii)

similar income.

As the law of Nauru does not provide for the imposition of income tax on any of the categories of income listed above, the salary and wages received by the taxpayer from working in Nauru will not be exempt from income tax under subsection 23AG(1) of the ITAA 1936 because paragraph 23AG(2)(d) of the ITAA 1936 applies.

Subsection 23AF(1) of the ITAA 1936 provides that where a taxpayer has been engaged in qualifying service on a particular approved project for a continuous period of not less than 91 days, any eligible foreign remuneration derived by the person that is attributable to that qualifying service is exempt. For a project to be an approved project for the purposes of section 23AF, there must be in force an approval granted in writing by the Minister of Trade (subsection 23AF(11) of the ITAA 1936).

As the project that the taxpayer is participating in has not been approved by the Minister for Trade, the salary and wages earned by the taxpayer from working on the project are not exempt under section 23AF of the ITAA 1936.

Therefore, the salary and wages received by an Australian resident taxpayer working in Nauru are assessable under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   section 23AF
   subsection 23AF(1)
   subsection 23AF(11)
   section 23AG
   subsection 23AG(1)
   subsection 23AG(2)
   paragraph 23AG(2)(a)
   paragraph 23AG(2)(b)
   paragraph 23AG(2)(d)
   subsection 23AG(7)

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

Business Line:  Public Groups and International

Date of publication:  30 January 2004

ISSN: 1445-2782