Issue
Is the taxpayer exempt from tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) on salary and wages received from an international organisation?
Decision
No. The taxpayer is not exempt from tax in Australia under section 23AG of the ITAA 1936 on salary and wages received from an international organisation as a result of the operation of subsection 23AG(2) of the ITAA 1936.
Facts
The taxpayer, an individual, is an Australian resident for taxation purposes.
The taxpayer works for an international organisation that is located overseas and receives salary and wages income from that employment.
Employees of the international organisation are exempt from tax in the foreign country as a result of a law of that country which grants them the same privileges and immunities as those granted to comparable employees of the United Nations.
The taxpayer has been working in the foreign country for a continuous period in excess of 91 days.
Reasons for Decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.
Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23AG of the ITAA 1936 which deals with overseas employment income.
Subsection 23AG(1) of the ITAA 1936 provides that where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived from the foreign service will be exempt from tax in Australia. 'Foreign service' includes service in a foreign country in the capacity as an employee (subsection 23AG(7)). 'Foreign earnings' includes income consisting of salary or wages (subsection 23AG(7)).
However subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG(1) will not apply where the foreign earnings are exempt from income tax in the foreign country only because of any of the conditions listed in subsection 23AG(2).
Under paragraph 23AG(2)(e) of the ITAA 1936 where income is exempt in the foreign country as a result of the operation of a law of the foreign country which corresponds to the International Organisations (Privileges and Immunities) Act 1936 (IO(P&I)A) that income is not exempt under subsection 23AG(1).
The taxpayer is in receipt of foreign earnings as a result of foreign service in a foreign country for a continuous period of not less than 91 days. The income therefore meets the requirements for exemption under subsection 23AG(1) of the ITAA 1936.
However the law of the foreign country which exempts the income from tax in that country is one dealing with privileges and immunities of employees of international organisations. It is therefore a law which corresponds to the IO(P&I)A. Therefore, as the income is only exempt in the foreign country because of a law corresponding to the IO(P&I)A the exclusion in paragraph 23AG(2)(e) of the ITAA 1936 will apply and the income will not be exempt income under subsection 23AG(1). Note 1: From 1 July 2009 subsection 23AG(1AA) of the ITAA 1936 provides foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to the range of circumstances specified in paragraph (a) to (e) of that subsection. Note 2: To finalise the question of the assessability of foreign income amounts it is necessary to consider the operation of any international tax agreement which may exist between Australia and the foreign country.
Amendment History
Date of amendment Part Comment 6 June 2014 Title, Issue, Decision and Facts Amended for style and clarity. Reasons for Decision Amended for clarity Insert note to reflect the additional requirement in subsection 23AG(1AA) from 1 July 2009. Legislative References Insert reference to subsection 23AG(1AA). Related Public Rulings Insert related TDs. Siebel Reference Number Insert Siebel Case Id.
Date of amendment | Part | Comment
6 June 2014 | Title, Issue, Decision and Facts | Amended for style and clarity.
Reasons for Decision | Amended for clarity Insert note to reflect the additional requirement in subsection 23AG(1AA) from 1 July 2009.
Legislative References | Insert reference to subsection 23AG(1AA).
Related Public Rulings | Insert related TDs.
Siebel Reference Number | Insert Siebel Case Id.