ATO Interpretative Decision

ATO ID 2005/155

Income Tax

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

Issue

Are the salary and wages received by a resident taxpayer while serving as a member of the Australian Defence Force (ADF) in Western Samoa with the Pacific Patrol Boat Project assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. The salary and wages received by a resident taxpayer while serving as a member of the ADF in Western Samoa with the Pacific Patrol Boat Project are not assessable under subsection 6-5(2) of the ITAA 1997 as the salary and wages are exempt under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

Facts

The taxpayer is an Australian resident for income tax purposes.

The taxpayer is a member of the ADF.

The taxpayer serves in Western Samoa for a continuous period of not less than 91 days as part of Australia's contribution to the Pacific Patrol Boat Project.

The Pacific Patrol Boat Project is a part of Australia's Defence Cooperation Program. The program's aim is to support Australia's defence relationships in the Pacific region by contributing to the maintenance of regional security and assisting with the development of security capabilities of various South Pacific countries, including Western Samoa.

The taxpayer receives salary and wages from the ADF while serving in Western Samoa.

A certificate under paragraph 23AD(1)(a) of the ITAA 1936 has not been issued by the Chief of the Defence Force to the effect that the taxpayer is on eligible duty with a specified organisation in a specified area outside Australia.

There is no double tax agreement between Australia and Western Samoa.

The laws of Western Samoa provide for the imposition of income tax on employment income and do not generally exempt such income from income tax.

The taxpayer is not connected with any international organisation or in receipt of any diplomatic or consular privileges or immunities.

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.

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 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 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(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).

Paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936 will not apply as there is no double tax agreement between Australia and Western Samoa.

Paragraphs 23AG(2)(c) and 23AG(2)(d) of the ITAA 1936 do not apply as the laws of Western Samoa provide for the imposition of income tax on employment income and do not generally exempt such income from income tax.

The salary and wages received by the taxpayer are not exempt in Western Samoa because of a law (or regulations) of Western Samoa corresponding to the International Organizations (Privileges and Immunities) Act 1963 and as such paragraph 23AG(2)(e) of the ITAA 1936 does not apply.

Paragraph 23AG(2)(f) and 23AG(2)(g) of the ITAA 1936 do not apply as the process by which Australia participated in the Pacific Patrol Boat Project did not result in Australia becoming a party to an international agreement that deals with diplomatic or consular privileges and immunities.

As none of the reasons listed in subsection 23AG(2) of the ITAA 1936 apply, the salary and wages received by the taxpayer from serving in Western Samoa as part of the Pacific Patrol Boat Project will be exempt from income tax under subsection 23AG(1) of the ITAA 1936.

Accordingly, the salary and wages received by the taxpayer from serving in Western Samoa as part of the Pacific Patrol Boat Project will not be assessable income under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ended 30 June 1997 Year ended 30 June 1998 Year ended 30 June 1999

Legislative References:
Income Tax Assessment Act 1936
   paragraph 23AD(1)(a)
   section 23AG
   subsection 23AG(1)
   subsection 23AG(2)
   subsection 23AG(7)

Related ATO Interpretative Decisions
ATO ID 2004/753
ATO ID 2004/770
ATO ID 2004/789
ATO ID 2004/849

Keywords
Defence force members
Defence force overseas service
Exempt income
Foreign income
Foreign salary & wages
International tax
Western Samoa

Business Line:  Public Groups and International

Date of publication:  3 June 2005

ISSN: 1445-2782