ATO Interpretative Decision

ATO ID 2007/176 (Withdrawn)

Income Tax

• This ATO ID is withdrawn from the database as the facts and reasons for decision are incomplete. In particular, the ATO ID does not consider the possible application of section 23AG.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are the salary and allowances received by a resident taxpayer from serving as a member of the Australian Defence Force (ADF) in Malaysia with the Australian Defence Cooperation Program (ADCP) assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The salary and allowances received by a resident taxpayer from serving as a member of the ADF in Malaysia with the ADCP are assessable under subsection 6-5(2) of the ITAA 1997.

Facts

The taxpayer is an Australian resident for tax purposes.

The taxpayer is a member of the ADF.

As a member of the ADF the taxpayer is performing governmental functions.

The taxpayer received salary and allowances from the ADF while serving in Malaysia.

Reasons for Decision

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income directly or indirectly from all sources, whether in or out of Australia, during the income year.

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

In determining liability to Australian tax on foreign sourced income, it is necessary to consider not only the income tax laws, but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one.

Schedule 16 to the Agreements Act contains the Double Tax Agreement between Australia and Malaysia (the Malaysian Agreement). Schedule 16A to the Agreements Act contains the Malaysian Protocol amending the Malaysian Agreement (Malaysian Protocol). The Malaysian Agreement and the Malaysian Protocol operate to avoid the double taxation of income received by Australian and Malaysian residents.

Article 18(1) of the Malaysian Agreement provides that remuneration paid by Australia to an individual in respect of services rendered in the discharge of governmental functions shall be taxable only in Australia. However, such remuneration shall be taxable only in Malaysia if the services are rendered in Malaysia and the recipient is a resident of Malaysia who:

(a)

is a citizen or national of Malaysia, or

(b)

did not become a resident of Malaysia solely for the purpose of performing the services.

The taxpayer performs services in discharge of governmental functions. Although the services were rendered in Malaysia the taxpayer is not a citizen or national of Malaysia. As a result, the salary and allowances paid to the taxpayer is exempt from tax in Malaysia as a result of Article 18(1) of the Malaysian Agreement.

Therefore, the salary and allowances received by a resident taxpayer from serving as a member of the ADF in Malaysia with the ADCP are assessable under subsection 6-5(2) of the ITAA.

Year of income:  Year ended 30 June 2002 Year ended 30 June 2003 Year ended 30 June 2004

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

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

Business Line:  International Centre of Expertise

Date of publication:  7 September 2007

ISSN: 1445-2782