Issue
Are the salary and wages received by a resident taxpayer, for employment carried out in Iraq, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The salary and wages received by the resident taxpayer, for employment carried out in Iraq, are not assessable under subsection 6-5(2) of the ITAA 1997 as they are exempt from tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936).
Facts
The taxpayer is a resident of Australia for income tax purposes.
The taxpayer is employed as an adviser to help the reconstruction of an Iraqi industry.
The taxpayer is in Iraq for six months.
Iraq taxes employment income.
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.
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 and 'foreign earnings' includes income consisting of salary and wages (subsections 23AG(6) and 23AG(7) of the ITAA 1936).
However, subsection 23AG(2) of the ITAA 1936 states that foreign earnings will not be exempt from tax under subsection 23AG(1) of the ITAA 1936 if the amount is exempt from income tax in the foreign country only because of any of the reasons listed.
Since the taxpayer is employed in Iraq for a continuous period of not less than 91 days and the salary and wages are not exempt from tax in Iraq because of one of the reasons listed in subsection 23AG(2) of the ITAA 1936, the income received from Iraq will be exempt from tax under subsection 23AG(1) of the ITAA 1936.
Accordingly, the salary and wages received by the resident taxpayer while employed in Iraq will not be assessable under subsection 6-5(2) of the ITAA 1997.