ATO Interpretative Decision
ATO ID 2002/178
Income Tax
Assessability of salary and wages income derived from employment in Norfolk Island - contract less than 6 monthsFOI status: may be released
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This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Current
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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's salary and wages income derived from employment in Norfolk Island assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) where the income is earned under a contract of less than 6 months duration?
Decision
No. The taxpayer's salary and wages income derived from employment in Norfolk Island is not assessable under subsection 6-5(2) of the ITAA 1997 where the income is earned under a contract of less than 6 months duration as the taxpayer's intention is to remain in Norfolk Island for a period longer than 6 months.
Facts
The taxpayer is a resident of Australia. They are not a resident of Norfolk Island for tax purposes.
The taxpayer is employed in Norfolk Island under a contract of employment for a continuous period of greater than 6 months.
The taxpayer undertakes another short term employment contract concurrently with the original contract of employment. This short term contract is for a period of less than 6 months. At the time of entering into this short term contract the taxpayer has in excess of 6 months remaining in relation to the original contract.
The duties under both contracts are to be performed wholly within the boundaries of Norfolk Island.
Both contracts of employment are the result of genuine commercial dealings and neither were entered into for the purpose of avoiding liability to 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 during the income year. However, if an amount is exempt income it is not included in assessable income of a taxpayer (subsection 6-15(2) of the ITAA 1997).
Section 24G of the Income Tax Assessment Act 1936 (ITAA 1936) provides an exemption from tax on certain income derived from sources in a prescribed Territory.
Subsection 24B(1) of the ITAA 1936 provides that 'prescribed Territory' means Norfolk Island.
Paragraph 24G(1)(e) of the ITAA 1936 provides an exemption from tax on income derived from employment, the duties of which are performed wholly or mainly in Norfolk Island. The Commissioner must also be satisfied that at the time the duties are commenced the taxpayer intended to remain in Norfolk Island for a continuous period of more than 6 months.
However subsection 24G(2) of the ITAA 1936 denies the exemption, subject to subsection 24G(3) of the ITAA 1936, where the income is paid to a non resident of Norfolk Island. Subsection 24G(3) of the ITAA 1936 provides that subsection 24G(2) of the ITAA 1936 will not apply if the income resulted from a genuine commercial arrangement that was not entered into for the purpose of avoiding liability to taxation.
The taxpayer's duties under both contracts will be wholly performed within the boundaries of Norfolk Island. Although the short term contract of employment is for a period of less than 6 months, the taxpayer at the time of commencing duties under that contract intended to remain in Norfolk Island for a period in excess of 6 months. Both contracts of employment are the result of genuine commercial dealings and neither were entered into for the purpose of avoiding liability to taxation.
Accordingly, the income from the short term contract of employment will be exempt from tax under paragraph 24G(1)(e) of the ITAA 1936 and will therefore not be included in the taxpayer's assessable income under subsection 6-5(2) of the ITAA 1997.
Amendment History
| Date of amendment | Part | Comment |
|---|---|---|
| 13 June 2014 | Issue | Minor grammatical changes. |
| Decision | Minor grammatical changes. | |
| Facts | Minor grammatical changes. | |
| Reasons for decision | Updated legislative references.
Minor grammatical changes. Minor changes to wording to remove irrelevant considerations. |
|
| Legislative references | Updated legislative references. |
Legislative References:
Income Tax Assessment Act 1936
section 24B(1)
section 24G
paragraph 24G(1)(e)
subsection 24G(2)
subsection 24G(3)
subsection 6-5(2)
subsection 6-15(2) Related ATO Interpretative Decisions
ATO ID 2001/775
Keywords
Australian external territories
Exempt Income
Norfolk Island
Prescribed Territory
ISSN: 1445-2782
| Date: | Version: | |
| 30 May 2001 | Original statement | |
| You are here → | 13 June 2014 | Updated statement |
| 10 June 2016 | Updated statement |
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