Issue
Is employment income earned by the resident taxpayer as a member of the United Nations Transitional Authority in East Timor (UNTAET) assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The employment income earned by the resident taxpayer as a member of UNTAET is not assessable under section 6-5 of the ITAA 1997 as the income is exempt from tax under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936).
Facts
The taxpayer is a resident of Australia for taxation purposes.
The taxpayer is not a member of the Australian Defence Force.
The taxpayer performed duties with the United Nations as part of UNTAET.
The taxpayer continued to be paid by their Australian employer for the period of their duty with UNTAET.
The taxpayer was present in East Timor for a continuous period of 91 days or more.
Australia does not have a double tax agreement with East Timor.
The income earned by the taxpayer is not exempt from tax in East Timor.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Employment income is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
Subsection 6-15(2) 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 a resident taxpayer is engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived will be exempt from tax in Australia. 'Foreign service' includes service in a foreign country in the capacity as an employee (subsection 23AG(7) of the ITAA 1936). 'Foreign earnings' includes income consisting of salary and wages (subsection 23AG(7) of the ITAA 1936).
Subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG(1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the reasons listed. However as this income will not be exempt from tax in East Timor subsection 23AG(2) of the ITAA 1936 will not apply.
Although the employment income is paid by the taxpayer's Australian employer, the duties of the employment are performed in East Timor. The income earned is considered to be from a source in East Timor.
As the taxpayer has been engaged in a continuous period of foreign service for a period of 91 days or more the foreign earnings will be exempt from tax in Australia under subsection 23AG(1) of the ITAA 1936.
Accordingly the employment income is not included in their assessable income under section 6-5 of the ITAA 1997.