| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012348058077
This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
Ruling
Subject: Assessability of retention bonus payment
Question and answer:
Is the retention bonus payment that you received from the Australian Defence Force (ADF) whilst not in a war zone assessable income?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2012.
Year ended 30 June 2013.
The scheme commenced on:
1 July 2011.
Relevant facts and circumstances
You are a serving member of the ADF.
You received a retention bonus.
You became eligible for the retention bonus while you were serving in a war zone.
You received the payment after you left the war zone.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2).
Income Tax Assessment Act 1997 Section 6-15.
Income Tax Assessment Act 1997 Section 11-15.
Income Tax Assessment Act 1936 Section 23AD.
Income Tax Assessment Act 1936 Subsection 23AD(1).
Income Tax Assessment Act 1936 Subsection 23AD(2).
Reasons for decision
Retention benefit
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the income of an Australian resident includes ordinary income derived from all sources, whether in or out of Australia, during the year of income.
A retention benefit or bonus is an additional reward payment derived by a taxpayer in the capacity as an employee (Dean & Anor v. Federal Commissioner of Taxation (1997) 78 FCR 140; (1997) 37 ATR 52; 97 ATC 4762 (Deans Case)).
A retention benefit is also considered ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997 and therefore will be classified as assessable unless section 23AD of Income Tax Assessment Act 1936 (ITAA 1936) applies.
The retention benefit 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).
In your situation you received the payment of the retention benefit on the date that you were paid the amount.
Application of section 23AD of the ITAA 1936
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 Australian Defence Force (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 Australian 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 attach 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.
For section 23AD of the ITAA 1936 to apply, the receipt of the retention benefit would need to fall on a date where you were eligible duty with a specified organisation in a specified area outside Australia, even if the receipt is not connected to one of those eligible duties.
In your situation the payment of your retention benefit occurred after the date of eligible duty. Therefore, the benefit was not earned while you were on eligible duty and is not exempt under section 23AD of the ITAA 1936.
Accordingly, the payment of the retention benefit you received after leaving the war zone is assessable income under subsection 6-5(2) of the ITAA 1997.