ATO Interpretative Decision

ATO ID 2003/385 (Withdrawn)

Income Tax

Assessability of salary and wages earned in Indonesia by an Australian resident who is on a cyclical roster and spends time off in Australia
FOI status: may be released

This ATO ID is withdrawn due to legislative changes to section 23 of the Income Tax Assessment Act 1936, but remains precedential up to the 2008-09 income year.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Status of this decision: Decision Withdrawn 15 July 2011

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Are the salary and wages received by an Australian resident taxpayer from employment in Indonesia assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) where the taxpayer is on a cyclical roster and spends their time off in Australia?

Decision

No. The salary and wages received by an Australian resident taxpayer from employment in Indonesia are not assessable under subsection 6-5(2) of the ITAA 1997 as they are exempt from tax under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

Facts

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

The taxpayer is employed in Indonesia by an Indonesian company for a period of one year.

The taxpayer's employment conditions include a cyclical roster of 8 weeks on and 3 weeks off. The taxpayer is required to work in excess of 60 hours per week which include weekends. The taxpayer spends their time off in Australia.

The taxpayer pays the Indonesian tax on the salary and wages received from the Indonesian company.

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.

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(6) of the ITAA 1936 provides that a period during which a person is engaged in foreign service includes any period during which the person is absent on recreation leave in accordance with the terms and conditions of the foreign service.

Paragraph 7 of Taxation Ruling IT 2441 states that where an Australian resident taxpayer is employed in a project in a foreign country, leave taken in circumstances similar to those mentioned in Taxation Ruling IT 2015 would be treated as recreation leave forming part of a period of foreign service under subsection 23AG(6) of the ITAA 1936. Taxation Ruling IT 2015 refers to the application of paragraph 23AF(3)(d) of the ITAA 1936 where employees are engaged in uninterrupted cycles of 5 weeks on site on an onshore oil drilling project and 5 weeks leave in Australia. IT 2015 states that the employees will be taken to have been engaged on an approved project for a period of qualifying service equal to the total number of days they are engaged under the 5 weekly cyclical arrangements.

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.

Under paragraph 23AG(2)(b) of the ITAA 1936, where income is exempt in the foreign country as a result of the operation of a double tax agreement, that income is not exempt under subsection 23AG(1) of the ITAA 1936.

Therefore, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA of 1997 so that those Acts are read as one. In the event of inconsistent provisions, the Agreements Act overrides the ITAA 1936 and ITAA 1997 (except in some limited situations).

Schedule 37 to the Agreements Act contains the double tax agreement 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.

Paragraph (1) of Article 15 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.

Paragraph 23AG(2)(b) of the ITAA 1936 will not apply as the salary and wages received by the taxpayer are not exempt from tax in Indonesia. The taxpayer is considered to be engaged in foreign service under subsection 23AG(6) of the ITAA 1936 having regard to the terms and conditions of the employment.

As the taxpayer is engaged in foreign service for a continuous period of not less than 91 days and the salary and wages are not exempt from tax in Indonesia under the Indonesian Agreement, the income received from Indonesia will be exempt from tax under subsection 23AG(1) of the ITAA 1936.

Therefore, the salary and wages received by the taxpayer from employment in Indonesia will not be assessable under subsection 6-5(2) of the ITAA 1997.

Date of decision: 8 May 2003

Year of income: Year ending 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   paragraph 23AF(3)(d)
   section 23AG
   subsection 23AG(1)
   subsection 23AG(2)
   paragraph 23AG(2)(b)
   subsection 23AG(6)
   subsection 23AG(7)

Income Tax Assessment Act 1997
   subsection 6-5(2)
   subsection 6-15(2)
   section 11-15

International Tax Agreements Act 1953
   section 4
   Schedule 37
   Schedule 37, Article 15, paragraph (1)

Related Public Rulings (including Determinations)
Taxation Ruling IT 2015
Taxation Ruling IT 2441

Keywords
Double tax agreements
Exempt income
Foreign income
Indonesia
International tax
Treaties

Business Line: Public Groups and International

Date of publication: 23 May 2003

ISSN: 1445-2782

history

	Date:	Version:
	8 May 2003	Original statement
You are here →	15 July 2011	Archived

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