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Are salary and wages derived in Papua New Guinea (PNG) by an Australian resident taxpayer assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. Salary and wages derived in PNG by the Australian resident taxpayer are not assessable income in Australia under section 6-5 of the ITAA 1997. The income is exempt from Australian income tax under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936).

The taxpayer is an Australian resident for taxation purposes in accordance with Australian law and for the purposes of the Double Taxation Agreement between Australia and PNG.

The taxpayer is employed in PNG for a period of 6 months. PNG income tax is withheld from salary and wages the taxpayer derives in that country.

An Australian resident is assessable on income derived from all sources under section 6-5 of the ITAA 1997.

In accordance with paragraph 15(1) of schedule 29 of the International Tax Agreements Act 1953 , PNG has the right to tax the income earned from the taxpayer's employment in that country.

However, as the taxpayer is a resident of Australia for tax purposes, the income will be assessable in Australia unless it is exempt under the ITAA 1936 or the ITAA 1997.

Subsection 23AG(1) of the ITAA 1936 exempts foreign earnings (salary, wages, commission, bonuses or allowances) derived by a resident individual taxpayer where the foreign service is for a continuous period exceeding 90 days. The exemption is subject to conditions specified in subsection 23AG(2) of the ITAA 1936.

Under subsection 23AG(7) of the ITAA 1936 foreign service means service in a foreign country as the holder of an office or in the capacity of an employee.

As the taxpayer is deriving salary and wage income, the condition of foreign service will be satisfied. The service period condition is also satisfied as the taxpayer is performing foreign service for a continuous period of six months. Conditions specified under subsection 23AG(2) of the ITAA 1936 will not apply. The salary and wage income the taxpayer derives in PNG will therefore be exempt under section 23AG of the ITAA 1936.