Assessability of salary and wages received by an Australian resident individual working in Monaco

Are the salary and wages received by an Australian resident taxpayer while working in Monaco assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The salary and wages received by an Australian resident taxpayer while working in Monaco are assessable under subsection 6-5(2) of the ITAA 1997 as the salary and wages are not exempt under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

The taxpayer is a resident of Australia for income tax purposes.

The taxpayer is employed by a Monaco based company for work performed in Monaco in excess of 91 days.

The law of Monaco does not provide for the imposition of income tax.

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 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 is engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that service will be exempt. 'Foreign service' includes service in a foreign country in the capacity of an employee (subsection 23AG(7) of the ITAA 1936). 'Foreign earnings' includes salary and wages income (subsection 23AG(7) of the ITAA 1936).

Subsection 23AG(2) of the ITAA 1936 provides that no exemption is available under subsection 23AG(1) of the ITAA 1936 in circumstances where an amount of foreign earnings derived in a foreign country is exempt from tax in the foreign country solely because of: • a double tax agreement or a law of a country that gives effect to such an agreement (paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936) • a law of that foreign country which generally exempts from, or does not provide for, the imposition of income tax on income derived in the capacity of an employee, income from personal services or any other similar income (paragraphs 23AG(2)(c) and 23AG(2)(d) of the ITAA 1936), or • a law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations (paragraphs 23AG(2)(e), 23AG(2)(f) and 23AG(2)(g) of the ITAA 1936).

There is no double tax agreement between Australia and Monaco. Further, the law of Monaco does not provide for the imposition of income tax on employment income. Therefore, paragraph 23AG(2)(d) of the ITAA 1936 will apply because the salary and wages earned in Monaco are not taxable in Monaco.

Accordingly, the salary and wages received by an Australian resident taxpayer while working in Monaco are assessable under subsection 6-5(2) of the ITAA 1997 as the salary and wages are not exempt under subsection 23AG(1) of the ITAA 1936.