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Edited version of private ruling
Authorisation Number: 1011897835274
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Ruling
Subject: Income - Home Purchase Assistance Scheme allowance
Question 1
Is the Home Purchase Assistance Scheme (HPAS) allowance assessable income?
Answer
Yes
This ruling applies for the following period
Year ended 30 June 2011
The scheme commences on
1 July 2010
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You are an employee of the Australian Defence Force (ADF).
You received a HPAS allowance during the 20XX-XXfinancial year.
You served as part of a military operation.
The Chief of the Defence Force has issued a certificate declaring that ADF members deployed on the military operation were on eligible duty for the purposes of section 23AD of the Income Tax Assessment Act 1936 (ITAA 1936).
You provided an advice showing you were in a 23AD Exempt Tax Zone for the period you were on the military operation.
You provided a copy of your pay advice covering the fortnightly period which started just prior to your return to Australia and ended shortly after your return to Australia.
The pay advice shows the cease date of your service on the military operation as being on a date included the fortnightly pay period covered in the pay advice.
The pay advice also shows the salary variation to include the HPAS allowance being effective from a date just prior to your return to Australia.
The full HPAS payment was paid to you the following day at the end of the pay period.
You are a resident of Australia for tax purposes.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 23AD
Income Tax Assessment Act 1936 section 23AD(1)
Income Tax Assessment Act 1936 section 23AD(2)
Income Tax Assessment Act 1936 section 23AD(3)
Income Tax Assessment Act 1936 paragraph 23AD(3)(b)
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 subsection 6-5(2)
Income Tax Assessment Act 1997 subsection 6-15(2)
Income Tax Assessment Act 1997 section 11-15
Reasons for Decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (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 23AD of the ITAA 1936 which deals with pay and allowances received by ADF members performing certain overseas duty.
Subsection 23AD(1) of the ITAA 1936 provides that the pay and allowances earned by a person serving as a member of the Defence Force are exempt from tax if:
(a) they are earned while there is in force a certificate in writing issued by
the chief of the Defence Force to the effect that the person is on eligible
duty with a specified organisation in a specified area outside Australia, and
(b) the eligible duty is not as, or under, an attaché at an Australian embassy or legation.
Subsection 23AD(2) of the ITAA 1936 provides that the regulations may declare that duty with a specified organisation, in a specified area outside Australia and after a specified day, is eligible duty for the purposes of the exemption.
Pay and allowances
The HPAS allowance will fall for consideration under section 23AD of the ITAA 1936 if it falls within the meaning of the term 'pay and allowances'.
The term 'pay and allowances' is not defined in section 23AD of the ITAA 1936 or elsewhere, but it may reasonably be construed to refer to salary, wages, bonuses and allowances received by an ADF member in their capacity as an employee.
The HPAS allowance is an entitlement paid to ADF personnel to assist with the purchase of a home. The HPAS allowance is an additional allowance you derived in your capacity as an employee (Dean & Anor v. Federal Commissioner of Taxation (1997) 78 FCR 140; (1997) 37 ATR 52; 97 ATC 4762). As such, the HPAS payment is considered an allowance within the term pay and allowances for the purposes of section 23 AD of the ITAA 1936.
Earned while certificate in force
A HPAS allowance is derived at the time it is received ((1958) 9 TBRD Case J20; 7 CTBR (NS) Case 130; and (1958) 9 TBRD Case J60; 8 CTBR (NS) Case 50 ).
Therefore, the HPAS allowance is earned by you at the time it was received.
While it will usually be the case that section 23AD of the ITAA 1936 will apply to the pay and allowances earned by an ADF member from eligible duty, there is no requirement in section 23AD of the ITAA 1936 that the pay and allowances be connected to that eligible duty.
Rather, section 23AD of the ITAA 1936 only requires that the pay and allowances are earned by an ADF member while the member is on eligible duty.
Subsection 23AD(3) of the ITAA 1936 outlines when a certificate is in force. Under paragraph 23AD(3)(b) of the ITAA 1936, the certificate continues in force until the earliest of:
(i) the time of the person's departure from the specified area; and
(ii) the time when, in accordance with a certificate of revocation signed by the Chief of the Defence Force, it ceases to be in force; and
(iii) any time prescribed by the regulations in relation to the eligible duty for the purposes of this subparagraph.
The certificate ceased to be in force and once the certificate ceases to be in force you are not considered to be on eligible duty for the purposes of section 23AD of the ITAA 1936.
You received the HPAS allowance after the certificated ceased to be in force. Therefore, the allowance was not earned while on eligible duty and is not exempt under section 23AD of the ITAA 1936.
The HPAS allowance will be assessable under subsection 6-5(2) of the ITAA 1997.
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