ATO Interpretative Decision

ATO ID 2005/54 (Withdrawn)

Income tax

• This ATO ID is withdrawn as the issue is now dealt with in Taxation Determination 2005/37.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are the salary and wages received by the taxpayer, a member of the ADF injured while on deployment in the Democratic Republic of East Timor (East Timor), assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. The salary and wages received by the taxpayer, a member of the ADF injured while on deployment in East Timor, are not assessable under subsection 6-5(2) of the ITAA 1997 as the income is exempt 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 a member of the ADF.

The taxpayer is deployed to East Timor for a continuous period of 103 days as part of the Australian Defence Cooperation Program (DCP) personnel to provide training support to East Timor. The Diplomatic Notes exchanged between the countries for the deployment provide that the DCP personnel enjoy the privileges and immunities reflected in the United Nations Model Status of Forces Agreement dated 9 October 1990.

The taxpayer returns to Australia prior to the completion of the deployment period for treatment, due to injuries suffered in East Timor, in accordance with the terms and conditions of the deployment.

The taxpayer receives salary and wages in relation to the East Timor service.

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 East Timor.

The law of East Timor provides for the imposition of income tax on employment income and does not generally exempt such income from income tax.

The salary and wages received by the taxpayer are not exempt in East Timor because of a law (or regulations) corresponding to the International Organizations (Privileges and Immunities) Act 1963 or under an international agreement to which Australia is a party that deals with privileges and immunities relating to diplomatic or consular matters or of persons connected with international organisations.

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 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).

Paragraph 23AG(6)(b) of the ITAA 1936 provides that the period during which a person is engaged in foreign service includes any period during which the person is, in accordance with the terms and conditions of that service, absent from work because of accident or illness.

The period during which the taxpayer is engaged in foreign service includes the period the taxpayer is absent from East Timor to receive treatment because of the accident under paragraph 23AG(6)(b) of the ITAA 1936.

There is no double tax agreement between Australia and East Timor. Therefore, paragraphs 23AG(2)(a) and (b) of the ITAA 1936 do not apply.

Paragraphs 23AG(2)(c) and (d) of the ITAA 1936 do not apply as the law of East Timor provides for the imposition of income tax on employment income and does not generally exempt such income from income tax.

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

Paragraphs 23AG(2)(f) and (g) of the ITAA 1936 do not apply as the process by which Australia participated in DCP did not result in Australia becoming a party to an international agreement concerning DCP.

As none of the reasons listed in subsection 23AG(2) of the ITAA 1936 apply, the salary and wages received by the taxpayer, while deployed to East Timor, are exempt from income tax under subsection 23AG(1) of the ITAA 1936 as the taxpayer has been engaged in foreign service for a continuous period of not less than 91 days.

Accordingly, the salary and wages received by the taxpayer during the period of deployment to East Timor will not be assessable income under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1936
   paragraph 23AD(1)(a)
   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)
   subparagraph 23AG(2)(f)(ii)
   paragraph 23AG(2)(g)
   paragraph 23AG(6)(b)
   subsection 23AG(7)

Related ATO Interpretative Decisions
ATO ID 2002/600

Keywords
Defence force overseas service
East Timor
Exempt income
Foreign income
International tax

Business Line:  Public Groups and International

Date of publication:  18 February 2005

ISSN: 1445-2782