Issue
Is the salary and wage income earned by a resident taxpayer while serving with the Peace Monitoring Group in Bougainville assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The salary and wage income earned by a resident taxpayer while serving with the Peace Monitoring Group in Bougainville is not assessable under subsection 6-5(2) of the ITAA 1997 as it is 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 served as a Civilian Monitor for the Peace Monitoring Group in Bougainville for a period of 91 days or more.
Prior to and immediately following their period of foreign service the taxpayer was employed by the Commonwealth Government of Australia.
The taxpayer was paid from Australia during their time in Bougainville.
The taxpayer's foreign salary and wage income is exempt from taxation in Papua New Guinea because of the Agreement between Australia, Papua New Guinea, New Zealand, Fiji and Vanuatu concerning the Neutral Truce Monitoring Group for Bougainville (Bougainville Agreement).
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).
As the taxpayer's duties are performed in Bougainville they are considered to have their source in Papua New Guinea.
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.
Where foreign employment income is exempt from tax in a foreign country for a reason not listed in subsection 23AG(2) of the ITAA 1936 a taxpayer will not be denied exemption from Australian tax under subsection 23AG(1) of the ITAA 1936.
Paragraph 23AG(2)(f) of the ITAA 1936 provides that an amount will not be exempt under section 23AG of the ITAA 1936 if it is exempt in the foreign country as a result of an international agreement to which Australia is party that deals with: • diplomatic or consular privileges and immunities; or • privileges and immunities in relation to persons connected with international organisations.
The Papua New Guinea income tax status of members of the Peace Monitoring Group in Bougainville is covered by the Bougainville Agreement. Paragraph 1 of Article 17 of the Bougainville Agreement provides that Australian residents are exempt from tax in Papua New Guinea on pay and emoluments received from Australia. As such, the taxpayer's salary and wages income will be exempt from tax in Papua New Guinea.
The Agreement is not one which falls within paragraph 23AG(2)(f) of the ITAA 1936 as an international agreement dealing with privileges and immunities of diplomatic or consuls or of persons connected with international organisations. The Peace Monitoring Group is not considered an 'international organisation', nor was it set up under an international organisation, such as the United Nations. The Agreement is not caught by any of the other reasons listed in subsection 23AG(2) of the ITAA 1936.
As the taxpayer's foreign salary and wages are exempt from tax in Papua New Guinea for a reason not listed in subsection 23AG(2) of the ITAA 1936, that income will be exempt from tax in Australia under subsection 23AG(1) of the ITAA 1936. Therefore the taxpayer will not be assessable on their salary and wage income under subsection 6-5(2) of the ITAA 1997.