Edited version of your written advice

Authorisation Number: 1013108882034

Date of advice: 25 October 2016

Ruling

Subject: Foreign income

Question

Is your foreign employment income derived in Country X exempted under section 23AD of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a resident of Australia for income tax purposes.

You are an Australian Public Service (APS) employee of the Department of Defence.

You were deployed on a defence operation in Country X in 20XX financial year.

You signed an official Australian Defence Force (ADF) document which states you are subject to defence force discipline during the course of your deployment.

You were deployed in a Defence Position by signing the official ADF document.

You were deployed with a disciplined force in a designated area of operations by the Defence Force.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 23AD

Income Tax Assessment Act 1936 Section 23AG

Reasons for decision

Section 23AD of the Income Tax Assessment Act 1936 (ITAA 1936) exempts from tax the pay and allowances earned by persons serving as members of the Defence Force on eligible duty outside Australia.

The opening words of subsection 23AD (1) of the ITAA 1936 set out the threshold requirement for entitlement to the exemption must be 'serving as member of the Defence Force'.

A 'member of the Defence Force' refers to a member of Australia's Naval, Army and Air Forces. The view is supported by a Taxation Board of Review decision, (1986) 29 CTBR (NS) 379 Case 51; Case T39 86 ATC 330 (Case 51). In that decision the Board considered the meaning of the same phrase in section 79B of the ITAA 1936. It unanimously held that a defence position is not a member of the Defence Force for the purposes of the section 79B of the ITAA 1936. It unanimously held that a defence position is not a member of the Defence Force for the purposes of section 79B. Chairman H.P. Stevens reasoned as follows:

  7. The term Defence Force is not defined in the Income Tax Assessment Act and it was the taxpayer's submission that within the terms of the Defence Force Discipline Act he was a "defence position" - inter alia "a person (other than a defence member) who (a)... accompanies a part of the Defence Force that is - (i) outside Australia; or (ii) on operations against the enemy" - and that it was the clear intention that such person is part of the Defence Force. I am unable to agree for I think it is obvious that the term Defence Force - particularly as capitals are used - has not an ordinary meaning but one flowing from the Defence Act. The Defence Force Discipline Act itself constantly uses the term Defence Force and, whilst for certain purposes refers to a person "being a defence position or a defence member" - inter alia "a member of the Permanent Naval Forces, the Australian Regular Army, The Regular Army Supplement or the Permanent Air Force" - it also refers to the Defence Force and to members of the Defence Force in such terms as to indicate that a defence position is not a member of the Defence Force.

   8. I should add that, even if it could be said a defence position was a part of the defence force, there still would be the question of whether he was in fact "serving" as a member thereof. As set out in para 5 re "employed in the service of an Australian force" the taxpayer was thus "serving" as a member of the APS rather than as a member of the Defence Force.

Expanding on the reasons given above by the Taxation Board of Review in Case 51, the meaning of the term 'Defence Force' in the Defence Act 1903 (DA 1903) will be relevant in determining the meaning of the phrase 'member of the Defence Force' in section 23AD of the ITAA 1936 (Federal Commissioner of Taxation v. Imperial Chemical Industries of Australia and New Zealand (1971) 127 CLR 529; (1971)3 ATR 321; (1971)72 ATC 4213). Specifically, section 17 of the DA 1903 states: 'The Defence Force' consists of the 'Australian Navy, the Australian Army and the Australian Air Force'. The identical use of capitals in the same phrase in section 23AD of the ITAA 1936, together with the use of the definite article 'the', suggests that the legislature intended that the expression 'the Defence Force' in section 23AD of the ITAA 1936 bear the same meaning it does in the DA 1903.

Accordingly, a 'member of the Defence Force' in section 23AD of the ITAA 1936 is confined to those appointed or enlisted as members of the Australian Navy, Army and Air Forces. This interpretation is consistent with the definition of 'defence member' in section 3 of the Defence Force Discipline Act 1982 (DFDA 1982). The definition of 'defence position' in section 3 of the DFDA 1982, expressly excludes a 'defence member' as defined in that section. The view that a 'defence position' is not a member of the Defence Force is reinforced by the use of the words 'accompanies' and 'accompanying' in the definition of 'defence position' which indicate that they are distinct from and do not form a part of the Defence Force.

You are an APS employee of the Department of Defence. You are a defence position who was deployed with a disciplined force to a designated area of operations by the Defence Force. Although you worked side by side with the ADF personnel, you were not appointed or enlisted as a member of the Australian Navy, Army and Air Forces. Accordingly, you are not a 'member of the Defence Force' within subsection 23AD (1) of the ITAA 1936. Therefore, your foreign employment income is not exempt under section 23AD of the ITAA 1936.