ATO Interpretative Decision

ATO ID 2005/193

Income tax

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

Issue

Are the salary or wages derived by an ADF member whilst serving in Kosovo with Operation OSIER as part of Australia's contribution to SFOR assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. The salary or wages derived by an ADF member whilst serving in Kosovo with Operation OSIER as part of Australia's contribution to SFOR are not assessable under subsection 6-5(2) of the ITAA 1997 as the salary and wages are exempt under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936).

Facts

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

The taxpayer is a member of the ADF, and in that capacity, served in Kosovo as part of operation OSIER.

The taxpayer served in Kosovo for a continuous period of not less than 91 days and received salary or wages in relation to that service.

Operation OSIER concerns the deployment of ADF members to serve in Kosovo, including other regions of the former Federal Republic of Yugoslavia (FRY), as part of Australia's contribution to the North Atlantic Treaty Organization (NATO) Stabilisation Force (SFOR). Operation OSIER commenced in March 1997 and concluded in June 2004.

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.

Since the end of the Kosovo War in June 1999, Kosovo has been governed as a protectorate by an international civil administration - the United Nations Interim Administration Mission in Kosovo (UNMIK). Prior to June 1999, Kosovo was a province of Serbia and Montenegro, which was a constituent republic of the former FRY. There is no double tax agreement between Australia and either Kosovo, Serbia and Montenegro or the former FRY.

UNMIK Regulation No. 2002/4 of 20 February 2002, which entered into force on 1 March 2002, provides for the imposition of income tax on employment income within Kosovo and does not generally exempt such income from income tax. Prior to 1 March 2002, the federal provisions of the former FRY provided for the imposition of income tax on employment income within Kosovo and did not generally exempt such income from income tax.

Australia participated in the NATO SFOR pursuant to the terms of a Memorandum of Understanding (MOU) between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Australia which set out the terms and conditions of Australia's contribution to the stabilisation force.

The MOU did not result in Australia becoming party to any international agreement concerning diplomatic or consular privileges and immunities, or privileges and immunities in relation to persons connected with an international organisation.

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 as an employee and 'foreign earnings' includes income consisting of salary or 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).

There is and was no double tax agreement between Australia and either Kosovo, Serbia and Montenegro or the former FRY. Therefore, paragraphs (a) and (b) of subsection 23AG(2) of the ITAA 1936 do not apply.

From 1 March 2002, UNMIK Regulation No. 2002/4 has provided for the imposition of income tax on employment income within Kosovo, and does not generally exempt such income from income tax. Prior to 1 March 2002, the federal provisions of the former FRY provided for the imposition of income tax on employment income within Kosovo and did not generally exempt such income from income tax. Consequently, paragraphs (c) and (d) of subsection 23AG(2) of the ITAA 1936 do not apply.

The taxpayer's earnings are not subject to any laws or agreements relating to privileges and immunities granted to persons connected with international organisations. Accordingly, paragraphs (e), (f) and (g) do not apply.

Therefore, as none of the reasons listed in subsection 23AG(2) of the ITAA 1936 apply, the salary and wages derived by an ADF member serving in Kosovo with Operation OSIER as part of Australia's contribution to SFOR, will be exempt from income tax under subsection 23AG(1) of the ITAA 1936 and will not be assessable under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ended 30 June 2000 Year ended 30 June 2001

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

Related Public Rulings (including Determinations)
Draft Taxation Determination TD 2005/D5

Related ATO Interpretative Decisions
ATO ID 2004/821

Other References:
United Nations Interim Administration Mission in Kosovo Regulation No. 2002/4 of 20 February 2002

Keywords
Defence force overseas service
Exempt income
Foreign income
Foreign salary & wages
International tax
Kosovo

Business Line:  Public Groups and International

Date of publication:  8 July 2005

ISSN: 1445-2782