Edited version of your written advice

Authorisation Number: 1013108341281

Date of advice: 18 October 2016

Ruling

Subject: Exempt income

Question

Are the salary and wages you derive from your employment with a XX in Australia exempt from income tax in Australia?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident.

You accepted an offer of employment with a XX office located in Australia.

You have provided your employment contract. Contained within the contract are the following

Clause (14)(III):

Second Party shall take into consideration that the Commission enjoys the diplomatic privileges and immunities provided for in the Relevant Convention and XX Relationships of 1963 as well as all other observed diplomatic customs and norms.

Clause (15)

The Second Party acknowledges that he/she undertakes to be responsible for reporting his/her own income and paying his/her own tax liability as well as ensuring the superannuation/future retirement allowance received on a monthly basis be paid into his or her own employment's retirement or such related fund.

You have derived income from your employment and will continue to do so in future income years.

You will not receive a PAYG payment summary from your employer.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Subsection 6-5(2)

Income Tax Assessment Act 1997 Section 768-100

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.

Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining liability to Australian income tax on income derived by XX officers, staff, and members of their families, it is necessary to consider not only the domestic tax laws but also the Relevant Privileges and Immunities Act 1972 (CPIA).

The CPIA gives domestic legal effect to the agreements Australia has made as a party to the XX Convention on XX Relations (the Convention). Specifically, subsections 5(1) and 5(4) of the CPIA gives effect to Article 49 of the Convention, which concerns the exemption of income from taxes.

Article 49 of the Convention makes reference to the exemption from income tax for all XX officers, employees, and members of their families forming part of their households, but with the exception of tax on 'private income' having its source in Australia.

Salary and wages from consulate employment is 'private income' from sources in Australia within the meaning of the CPIA, therefore Article 49 of the CPIA does not operate to exempt your employment income from being assessable in Australia.

Where the Relevant Convention and XX Convention on XX Relations 1963 (VCCR) apply, the following income of diplomatic or XX representatives, their staff and family is exempt from Australian income tax by virtue of the Diplomatic Privileges and Immunities Act 1967 (DPIA):

● the official salary and foreign source income of career XX heads and officers and of full-time technical and administrative staff;

● the official salary of honorary XX heads and officers and of full-time domestic staff. However, by virtue of Article 71 of the VCCR, there is no exemption in respect of the official income of honorary consuls who are nationals of, or permanent residents in, Australia (Morris v. Federal Commissioner of Taxation 20 ATR 1666;(1989) 25 FCR 556;89 ATC 5303); and 

● the foreign source income of non-working members of the families forming part of the household of career XX heads and officers, and of the full-time non-domestic staff members (but in the latter case only when the head of the post is a career diplomat).

As you are a resident of Australia, the DPIA will not apply to exempt your income from being assessable in Australia.

Therefore is no provision in either the CPIA or the DPIA that will apply to exempt your employment income from being assessable in Australia.

Section 768-100 of the ITAA 1997 provides that the official salary and foreign source income derived by foreign XX and diplomatic representatives and their official staff is exempt from tax in Australia where:

● they are not covered by the Relevant Convention or the VCCR; and

● they are not Australian citizens or ordinarily resident in Australia (Taxation, Commissioner of (Cth) v. Efstathakis (1979) 25 ALR 148;(1979) 25 ALR 148;(1979) 38 FLR 276;79 ATC 4256;9 ATR 867); and

● the relevant country has enacted reciprocal tax exemption arrangements for Australian XX and diplomatic representatives and their staff.

As you are a resident of Australia section 768-100 of the ITAA 1997 will not apply to exempt your salary and wages from being assessable in Australia.

Therefore, the before mentioned conventions or legislation will apply to exempt your employment income from being assessable in Australia.

Accordingly, the salary and wages that you derive from being employed by the XX in Australia is assessable in Australia under subsection 6-5(2) of the ITAA 1997.

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