Issue
Are the salary and allowances earned by a resident taxpayer from Sierra Leone assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The salary and allowances earned by a resident taxpayer from Sierra Leone are not assessable income under subsection 6-5(2) of the ITAA 1997 as they 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 works in Sierra Leone for a body created by an agreement between the United Nations and the Government of Sierra Leone (The Agreement).
The Agreement states that international employees of Sierra Leone will be exempt from taxation on salaries and allowances.
The taxpayer has not paid income tax on earnings in Sierra Leone.
The Government of Sierra Leone has a tax system in place to tax employment income.
Australia does not have a tax treaty, or a Memorandum of Understanding with Sierra Leone.
The taxpayer has been working in Sierra Leone for a continuous period of not less than 91 days.
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.
Salary and allowances 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 it is not included in 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 from foreign service 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 (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 tax 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 or 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).
Paragraphs 23AG(2)(a) and (b) of the ITAA 1936 do not apply as there is no double Tax Agreement between Australia and Sierra Leone.
As the laws of Sierra Leone provide for the imposition of income tax and do not generally exempt employment income from income tax, paragraphs 23AG(2)(c) and (d) of the ITAA 1936 will not apply.
The salary and allowances received by the taxpayer were not exempt in Sierra Leone because of a law (or regulations) of Sierra Leone 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 taxpayer's salary and allowances are exempt from tax in Sierra Leone under the terms of the Agreement signed by the Government of Sierra Leone and the United Nations. This is not one of the reasons listed in subsection 23AG(2) of the ITAA 1936.
As none of the reasons listed in subsection 23AG(2) of the ITAA 1936 apply, the salary and allowances received from Sierra Leone will not be assessable income under subsection 6-5(2) of the ITAA 1997.