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Are the payments made by a state government department to a director of a United States of America (US) resident company for personal services performed in Australia exempt from tax under paragraph 23(b) of the Income Tax Assessment Act 1936 (ITAA 1936)?

No. The payments made by the state government department to a director of a US resident company for personal services performed in Australia are not exempt income under paragraph 23(b) of the ITAA 1936.

The director of a US resident company provides specialised training to the staff of a state government department at a number of venues in Australia under a contract between the government department and the US company.

The services provided by the director involve the provision of training to the department's staff with a view to advance their skills in carrying out their duties.

The department makes payments for the personal services rendered by the director in Australia.

Paragraph 23(b) of the ITAA 1936 exempts the remuneration paid by the government of the Commonwealth or of a State to a non-resident for expert advice to that government or as a member of a Royal Commission.

The exemption under paragraph 23(b) of the ITAA 1936 only applies to remuneration paid by the government of the Commonwealth or of a State to a non-resident for expert advice to that government.

The provision of specialised training to a state government's department staff with a view to advance their skills in carrying out their duties is not 'advice to [the] government', i.e. advice for use by the government itself in order for the government to determine what action to take (for example, the preparation of a report on a specific topic). Although the training is of a specialised nature, providing training to staff of a government department is not the same as providing expert advice to the government.

Accordingly, the payments made by the state government department to a director of a US resident company for personal services performed in Australia by the director are not exempt income under paragraph 23(b) of the ITAA 1936.