Assessability of salary and wages of an Australian resident employed in foreign consulate located in Australia

Are the salary and wages received by an Australian resident who is employed in a foreign consulate located in Australia, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The salary and wages received by the Australian resident who is employed in a foreign consulate located in Australia are assessable under subsection 6-5(2) of the ITAA 1997. The salary and wages are not exempt income under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

The taxpayer is an Australian resident for income tax purposes.

The taxpayer is employed in a foreign consulate located in Australia. Their salary and wages are paid by the foreign government.

There is no double tax treaty between Australia and the foreign country.

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 and 'foreign earnings' include income consisting of salary and wages (subsection 23AG(7) of the ITAA 1936).

The taxpayer is working in a foreign consulate that is located in Australia. The taxpayer is therefore not employed in a 'foreign country'. Accordingly, the exemption under subsection 23AG(1) of the ITAA 1936 will not apply to the taxpayer.

In determining liability to Australian tax on income received by consular officers, staff, and members of their families, it is necessary to consider not only the domestic tax laws but also the Consular Privileges and Immunities Act 1972 (CPIA).

The CPIA gives domestic legal effect to the agreements Australia has made as a party to the Vienna Convention on Consular Relations (the Convention). Specifically, subsections 5(1) and 5(4) of the CPIA gives effect to Article 49 of the Convention, which concerns the exemption of income from taxes.

Article 49 of the Convention makes reference to the exemption from income tax for all consular officers, employees, and members of their families forming part of their households, but with the exception of tax on 'private income' having its source in Australia.

Salary and wages from consulate employment is 'private income' from sources in Australia within the meaning of the CPIA.

Accordingly, the salary and wages received by the Australian resident taxpayer for employment in the foreign consulate does not fall within the exemption given in Article 49 of the Convention. The salary and wages are therefore assessable income under subsection 6-5(2) of the ITAA 1997.