ATO Interpretative Decision

ATO ID 2005/76 (Withdrawn)

Income tax

Assessability of employment income received by an Australian resident working in Vanuatu: income exempt from tax in Vanuatu under a Memorandum of Understanding
FOI status: may be released

This ATO ID is withdrawn as the issue is now dealt with in Taxation Determination 2005/15.

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

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Is the salary and wages income derived by an Australian resident taxpayer while working in Vanuatu, assessable in Australia under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) where the income is exempt from tax in Vanuatu under a Memorandum of Understanding (MOU) between the Australian and Vanuatu governments?

Decision

No. The salary and wages income derived by a resident taxpayer working in Vanuatu is not assessable under subsection 6-5(2) of the ITAA 1997 as the income is exempt from tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936).

Facts

The taxpayer is an Australian resident for tax purposes.

The taxpayer is a serving member of the Australian Defence Force and has worked on a project in Vanuatu for a period in excess of 90 days.

The taxpayer is receiving salary and wages for service on the project.

The taxpayer will not be taking any breaks in service, other than annual recreational leave.

The Australian and Vanuatu governments have signed an MOU in relation to the project. The salary and wages income derived by the taxpayer is exempt from tax in Vanuatu under the MOU.

There is no personal income tax imposed in Vanuatu.

There is no double tax agreement between the governments of Australia and Vanuatu.

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 of Australia.

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.

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 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 is engaged in foreign service for a continuous period of not less than 91 days, foreign income derived from that service will be exempt. Subsection 23AG(7) defines 'foreign service' and 'foreign earnings'. 'Foreign service' includes service in a foreign country in the capacity of an employee and 'foreign earnings' includes salary and wages income.

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 listed in subsection 23AG(2):

•: A double tax agreement or a law of a foreign country that gives effect to such an agreement; or
•: The foreign country exempts income from employment or does not tax employment income generally; or
•: A law of another country or an international agreement with which Australia is a party dealing with the privileges and immunities of diplomats or consuls, or of persons connected with the international organisations.

Vanuatu does not impose income tax on employment income, but this is not the only reason why the taxpayer's salary and wages income is not subject to income tax in Vanuatu. The Republic of Vanuatu and the Government of Australia have entered into a MOU concerning the conduct of a project by members of the Australian Defence Force. The MOU specifically exempts salary and wages paid in connection with the project from tax in Vanuatu. As a result the taxpayer's salary and wages income is not exempt from tax in Vanuatu only because of one of the reasons listed in subsection 23AG(2) ITAA 1936.

Therefore, the taxpayer's salary and wages income, which is exempt from tax in Vanuatu under an MOU, is not assessable under subsection 6-5(2) of the ITAA 1936 as the income is exempt from tax in Australia under section 23AG of the ITAA 1936.

Date of decision: 25 February 2005

Year of income: Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006 Year ended 30 June 2007

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

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

Related Public Rulings (including Determinations)
Taxation Ruling TR 96/15
Taxation Ruling TR 96/15A
Taxation Ruling TR 96/15E

Related ATO Interpretative Decisions
ATO ID 2001/28

Keywords
Defence force overseas service
Exempt income
Foreign income
Vanuatu

Business Line: Public Groups and International

Date of publication: 11 March 2005

ISSN: 1445-2782

history

	Date:	Version:
	25 February 2005	Original statement
You are here	12 May 2006	Archived

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