ATO Interpretative Decision
ATO ID 2005/240 (Withdrawn)
Income tax
Assessability of income derived in Indonesia and received by a resident taxpayerFOI status: may be released
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This ATO ID is withdrawn from the database due to legislative changes to section 23AG of the Income Tax Assessment Act 1936 which took effect from 1 July 2009.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 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.
Status of this decision: Decision Withdrawn 22 October 2010
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 income received by a resident taxpayer from an international organisation for services performed in Indonesia, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The income received by a resident taxpayer from an international organisation for services performed in Indonesia, is not assessable under subsection 6-5(2) of the ITAA 1997 as it is exempt from tax under section under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936).
Facts
The taxpayer is an Australian resident for tax purposes.
The taxpayer entered into an employment contract to provide consulting services for an International Organisation (IO).
The contract was for not less than 91 days.
The taxpayer is an employee of the IO and receives a salary and wages for the services provided.
The taxpayer provides the service in Indonesia.
The taxpayer's income is exempt from tax in Indonesia because of a Memorandum of Understanding (MOU) between the Government of Indonesia and the IO.
The MOU grants to staff of IO the same status as that granted to agencies of the United Nations.
There is a tax system in place in Indonesia.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident will include ordinary income derived from all sources, whether in or out of Australia, 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 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 (subsections 23AG(6) and 23AG(7) of the ITAA 1936).
Subsection 23AG(2) of the ITAA 1936 provides that foreign earnings will not be exempt from tax under subsection 23AG(1) of the ITAA 1936 if the amount is exempt from income tax in the foreign country for any of the reasons listed therein.
The salary and wages received by the taxpayer is exempt in Indonesia because of the MOU between Indonesia and IO. None of the reasons listed under subsection 23AG(2) of the ITAA 1936 apply. Therefore, the income is exempt under subsection 23AG(1) of the ITAA 1936.
In determining liability to Australian tax on foreign sourced income received by a resident, it is necessary to consider not only the income tax laws but also any applicable tax treaties contained in the International Tax Agreements Act 1953 (the Agreements Act).
Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that those Acts are read as one.
Schedule 37 to the Agreements Act contains the tax treaty between Australia and the Republic of Indonesia (the Indonesian Agreement). The Indonesian Agreement operates to avoid double taxation of income received by Australian and Indonesian residents.
Article 15(1) of the Indonesian Agreement provides that salary and wages derived by an individual who is a resident of Australia, in respect of employment, shall be taxable in Australia unless the employment is exercised in Indonesia. If the employment is exercised in Indonesia, the salary and wages may be taxed in Indonesia. Hence Australia and Indonesia may tax the salary and wages.
Accordingly, the income received by a resident taxpayer from an IO for services performed in Indonesia, is not assessable under subsection 6-5(2) of the ITAA 1997 as it is exempt from tax under section under subsection 23AG(1) of the ITAA 1936.
Date of decision: 29 July 2005Year of income: Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006
Legislative References:
Income Tax Assessment Act 1936
subsection 23AG(1)
subsection 23AG(2)
subsection 23AG(7)
subsection 6-5(2)
subsection 6-15(2)
section 11-15 International Tax Agreements Act 1953
section 4
Schedule 37, Article 15(1)
Keywords
Double tax agreements
Exempt income
Foreign income
Indonesia
International tax
ISSN: 1445-2782
| Date: | Version: | |
| 29 July 2005 | Original statement | |
| You are here → | 22 October 2010 | Archived |