Tax Offset for a low income taxpayer who is a dependant of a member of the US Armed Forces in Australia

Is the taxpayer, a dependent of a United States (US) Armed Forces member and to whom subsection 23AA(3) of the Income Tax Assessment Act 1936 (ITAA 1936) applies, entitled to claim the tax offset for certain low income taxpayers available under section 159N of the ITAA 1936?

Yes. The taxpayer, a dependent of a US Armed Forces member and to whom subsection 23AA(3) of the ITAA 1936 applies, is entitled to claim the tax offset for certain low income taxpayers available under section 159N of the ITAA 1936 where their taxable income is below the relevant threshold.

The taxpayer is living in Australia with their spouse.

The taxpayer is the spouse of a member of the US Armed Forces who is serving in Australia under the agreement between the Australian Government and the US Government concerning the status of US Armed Forces in Australia (Forces Agreement).

Apart from the operation of subsection 23AA(3) of the ITAA 1936 the taxpayer would be a resident of Australia for income tax purposes under subsection 6(1) of the ITAA 1936.

The taxpayer's taxable income is less than the relevant threshold for the purposes of section 159N of the ITAA 1936.

Section 23AA of the ITAA 1936 gives legislative effect to certain provisions relating to income tax contained in various agreements Australia has entered into with the US Government, including the Forces Agreement.

Under the Forces Agreement, Australia agreed to exempt the pay of members of the US Armed Forces in Australia. As the pay and allowances of Armed Forces members of any foreign government who are serving in Australia is generally exempt under Item 5 of section 842-105 of the Income Tax Assessment Act 1997 (ITAA 1997), section 23AA ensures that the foreign source income of members of the US Armed Forces and their dependants is exempt from Australian income tax.

Section 23AA achieves this purpose by deeming the persons covered by the relevant agreements and their dependants to be non-residents of Australia for income tax purposes.

Specifically, subsection 23AA(3) of the ITAA 1936 applies where a person: (a) has been in Australia, or has carried on business in Australia, solely for prescribed purposes during a period when he was a foreign contractor or employee; (b) has been in Australia solely for prescribed purposes during a period when he was a member of the US Forces, a civilian accompanying the US Forces or a US employee; or (c) has been in Australia during a period when he was a dependant of such a contractor, employee, member or civilian who was in Australia solely for prescribed purposes,

Subsection 23AA(3) of the ITAA 1936 provides that for the purposes of the ITAA 1936, other than Subdivision A of Division 17, the person is deemed to be a non-resident of Australia during that period, and that period is disregarded in determining whether the person is a resident of Australia at any other time.

The taxpayers' spouse is in Australia for prescribed purposes as the spouse is in Australia to carry out activities pursuant to the Forces Agreement, and the taxpayer is a dependant of their spouse (subsection 23AA(1) of the ITAA 1936).

Accordingly, the taxpayer is deemed to be a non-resident of Australia for income tax purposes for the period they are present in Australia under subsection 23AA(3) of the ITAA 1936. However, this treatment does not apply for the purposes of eligibility for concessional tax offsets provided in Subdivision A of Division 17 of the ITAA 1936.

Section 159N of the ITAA 1936 provides a tax offset to a resident taxpayer whose taxable income is less than the relevant threshold. Section 159N of the ITAA 1936 is set out in Subdivision A of Division 17 of the ITAA 1936.

Accordingly, as the taxpayer is not deemed under subsection 23AA(3) of the ITAA 1936 to be a non-resident of Australia for the purposes of section 159N, and their taxable income is less than the relevant threshold contained in section 159N, they are entitled to the tax offset for certain low income taxpayers. This ATO ID was amended by replacing the reference to paragraph 23(u) of the ITAA 1936 with a reference to Item 5 of section 842-105 of the ITAA 1997 which is effective from 14 September 2006.