ATO Interpretative Decision

ATO ID 2006/89 (Withdrawn)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• This ATO ID is withdrawn from the database due to legislative changes to section 23AG of the Income Tax Assessment Act 1936 which took effect from 1 July 2009.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 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 allowance received by a resident taxpayer while employed in Fiji by an organisation resident in Fiji assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The salary and allowance received by a resident taxpayer while employed in Fiji by an organisation resident in Fiji are assessable under subsection 6-5(2) of the ITAA 1997.

Facts

The taxpayer is an Australian resident for income tax purposes.

The taxpayer is employed in Fiji by an organisation resident in Fiji.

The taxpayer receives a salary and a housing allowance as part of the employment contract.

The taxpayer has been employed in Fiji for a continuous period of not less than 91 days.

The taxpayer is not liable to pay income tax in Fiji because of a Fijian law which affords privileges and immunities to certain international organisations which includes the taxpayer's employer.

The Government of Fiji has a system in place to tax employment income.

There is no Memorandum of Understanding existing between the taxpayer's employer and the Fijian Government which exempts employees from taxation.

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, whether in or out of Australia, during the income year.

Salaries and allowances 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 it is not included in 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 Income Tax Assessment Act 1936 (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 from foreign service 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 salaries and allowances (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).

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 treaty contained in the International Tax Agreements Act 1953 (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 32 of the Agreements Act contains the tax treaty between Australia and Fiji (the Fijian Agreement). The Fijian Agreement operates to avoid the double taxation of income received by Australian and Fijian residents.

Article 15 of the Fijian Agreement provides that salaries, wages and other similar remuneration derived by an individual who is a resident of Australia in respect of an employment shall be taxable only in Australia unless the employment is exercised in Fiji. If the employment is exercised in Fiji, the remuneration may be taxed in Fiji.

Paragraphs 23AG(2)(a) or 23AG(2)(b) of the ITAA 1936 do not apply to the taxpayer as the income is not exempt from tax under the Fijian Agreement.

The tax law of Fiji generally provides for the taxation of employment income and does not generally exempt income of that nature from income tax. Therefore, paragraphs 23AG(2)(c) and 23AG(2)(d) of the ITAA 1936 do not apply.

Paragraph 23AG(2)(e) of the ITAA 1936 applies as the taxpayer's salary and allowance are exempt from tax in Fiji under a law of Fiji corresponding to the International Organisations (Privileges and Immunities) Act 1963 or the regulations under that Act.

The employment income does not fall within the scope of paragraphs 23AG(2)(f) or 23AG(2)(g) of the ITAA 1936 and therefore they do not apply.

The salary and allowance received by the taxpayer are not exempt under subsection 23AG(1) of the ITAA 1936 as paragraph 23AG(2)(e) of the ITAA 1936 applies.

Accordingly the salary and allowance received by the taxpayer from working in Fiji for an organisation resident in Fiji are assessable under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ending 30 June 2006 Year ending 30 June 2007

Legislative References:
Income Tax Assessment Act 1936
   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)
   paragraph 23AG(2)(g)
   subsection 23AG(7)

Keywords
Diplomatic privileges & immunities
Employee allowances
Exempt income
Fiji
International tax
Remuneration to officials of various international organisations
Salary & wages income

Business Line:  Public Groups and International

Date of publication:  24 March 2006

ISSN: 1445-2782