Issue
Are the salary and wages received by an ADF member from serving in Ethiopia with Operation POMELO as part of Australia's contribution to the United Nations Mission in Ethiopia and Eritrea (UNMEE) assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The salary and wages received by a resident ADF member from serving in Ethiopia with Operation POMELO as part of the Australia's contribution to the UNMEE are not assessable under subsection 6-5(2) of the ITAA 1997 as the salary and wages are exempt under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936).
Facts
The taxpayer is an Australian resident for income tax purposes.
The taxpayer is a member of the ADF.
The taxpayer served in Ethiopia as part of Operation POMELO.
Operation POMELO involved the deployment of ADF members to serve in Ethiopia as part of Australia's contribution to the UNMEE commencing 15 January 2001 and continuing in an ongoing manner.
The taxpayer served in Ethiopia for a continuous period of not less than 91 days.
The taxpayer received salary and wages in relation to that service.
A certificate under paragraph 23AD(1)(a) of the ITAA 1936 has not been issued by the Chief of the Defence Force to the effect that the taxpayer is on eligible duty with a specified organisation in a specified area outside Australia.
There is no double tax agreement between Australia and Ethiopia.
The law of Ethiopia provides for the imposition of income tax on employment income and does not generally exempt such income from income tax.
Australia participated in the UNMEE pursuant to the terms of a Memorandum of Understanding (MOU) between the United Nations and Australia which set out the terms and conditions of Australia's contribution to the mission.
The MOU did not result in Australia becoming a party to any international agreement concerning diplomatic or consular privileges and immunities or privileges and immunities in relation to persons connected with an international organisation.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes gross income derived directly or indirectly from all sources during the income year which is not exempt income.
Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
However, 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 from that foreign service will be exempt from tax in Australia. 'Foreign service' includes service in a foreign country in the capacity of an employee and 'foreign earnings' includes income consisting of salary and wages (subsection 23AG(7) of the ITAA 1936).
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 following reasons: (a) a law of the foreign country giving effect to a double taxation agreement (b) a double tax agreement (c) provisions of a law of the foreign country under which income covered by any of the following categories is generally exempt from income tax: (i) income derived in the capacity of an employee (ii) income from personal services (iii) similar income (d) the law of the foreign country does not provide for the imposition of income tax on one of more of the categories of income mentioned in paragraph (c) (e) a law of the foreign country corresponding to the International Organizations (Privileges and Immunities) Act 1963 or to the regulations under that Act (f) an international agreement to which Australia is a party and that deals with: (i) diplomatic or consular privileges and immunities (ii) privileges and immunities in relation to persons connected with international organisations (g) a law of the foreign country giving effect to an agreement covered by paragraph (f).
There is no double tax agreement between Australia and Ethiopia. Therefore, paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936 do not apply.
The law of Ethiopia provides for the imposition of income tax on employment income and does not generally exempt such income from income tax. Therefore, paragraphs 23AG(2)(c) and 23AG(2)(d) of the ITAA 1936 do not apply.
The salary and wages received by the taxpayer were not exempt in Ethiopia because of a law (or regulation) of Ethiopia corresponding to the International Organizations (Privileges and Immunities) Act 1963 and as such paragraph 23AG(2)(e) of the ITAA 1936 does not apply.
The process by which Australia participated in UNMEE did not result in Australia becoming a party to the UNMEE Agreement or to any other international agreement concerning UNMEE.
Therefore, paragraphs 23AG(2)(f) and 23AG(2)(g) of the ITAA 1936 do not apply.
Therefore, as none of the reasons listed in subsection 23AG(2) of the ITAA 1936 apply, the salary and wages received by an ADF member from serving in Ethiopia with Operation UNMEE as part of Australia's contribution to UNMEE will be exempt from income tax under subsection 23AG(1) of the ITAA 1936 and will not be assessable under subsection 6-5(2) of the ITAA 1997.