Issue
Is the salary and wage income earned by a resident taxpayer while serving in a foreign country with the United Nations Peacekeeping Force, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The salary and wage income earned by a resident taxpayer while serving in a foreign country with the United Nations Peacekeeping Force is assessable under subsection 6-5(2) of the ITAA 1997 The income is not exempt 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 was an employee serving in a foreign country with the United Nations Peacekeeping Mission, for a continuous period in excess of 183 days.
Australia does not have a double tax agreement with the foreign country.
The income earned by the taxpayer was exempt from tax in the foreign country under legislation enacted by the foreign country to give effect to the Convention on Privileges and Immunities of Specialised Agencies of the United Nations (of which Australia is a party).
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.
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 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).
However 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.
Paragraph 23AG(2)(f) of the ITAA 1936 provides that an amount will not be exempt under subsection 23AG(1) of the ITAA 1936 if it is exempt in the foreign country as a result of an international agreement to which Australia is a party that deals with: • diplomatic or consular privileges and immunities; or • privileges and immunities in relation to persons connected with international organisations.
Paragraph 23 AG(2)(g) of the ITAA 1936 also provides that an amount will not be exempt under subsection 23AG(1) of the ITAA 19363 if it is exempt in the foreign country as a result of a law of that country giving effect to an agreement covered in paragraph 23AG(2)(f) of the ITAA 1936.
The Convention on Privileges and Immunities of Specialised Agencies of the United Nations is an international agreement to which paragraph 23AG(2)(f) of the ITAA 1936 applies. The foreign country enacted legislation to give effect to this agreement and exempts from tax the salary and wages earned by Australian residents serving in the United Nations Peacekeeping Force in that country.
As the taxpayer's salary and wages are exempt from tax in the foreign country for the reason listed in paragraph 23AG(2)(g) of the ITAA 1936 the income is not exempt from tax in Australia under subsection 23AG(1) of the ITAA 1936.
The salary and wage income is therefore included in the taxpayer's assessable income under subsection 6-5(2) of the ITAA 1997. Note: The taxpayer may be entitled to a tax offset under section 23AB of the ITAA 1936.