Issue
Is the salary and wages income received by an Australian resident taxpayer from teaching in Indonesia assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The salary and wages income received by an Australian resident taxpayer from teaching in Indonesia is assessable under subsection 6-5(2) of the ITAA 1997 and is not exempt income under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936).
Facts
The taxpayer is an Australian resident for income tax purposes.
The taxpayer was employed as a lecturer in Indonesia for approximately 12 months.
The taxpayer receives salary and wages income from an Australian University.
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.
Subsection 23AG(7) of the ITAA 1936 defines 'foreign service' as service in a foreign country as the holder of an office or in the capacity of an employee, and 'foreign earnings' include salary, wages, commission, bonuses or allowances.
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 exclusions listed therein.
Under paragraph 23AG(2)(b) of the ITAA 1936, where income is exempt in the foreign country as a result of the operation of a double tax agreement, that income is not exempt under subsection 23AG(1) of the ITAA 1936.
Therefore, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).
Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).
Schedule 37 to the Agreements Act contains the double tax agreement between Australia and Indonesia (the Indonesian Agreement). The Indonesian Agreement operates to avoid the double taxation of income received by Australian and Indonesian residents.
Article 20 of the Indonesian Agreement provides that remuneration derived by an Australian resident individual who, at the invitation of any university, college, school or other recognised educational institution, visits Indonesia for a period not exceeding two years for the purpose of teaching or research or both at such educational institution, will be taxable only in Australia.
As the salary and wages income received by the taxpayer is exempt from tax in Indonesia pursuant to Article 20 of the Indonesian Agreement, the taxpayer is not entitled to an exemption from tax in Australia under subsection 23AG(1) of the ITAA 1936.
Therefore, the salary and wages income received by the taxpayer from teaching in Indonesia is assessable in Australia under subsection 6-5(2) of the ITAA 1997.