Issue
Are the salary and wages received by a resident taxpayer while working in the Palestinian Territories 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 taxpayer while working in the Palestinian Territories are not assessable under subsection 6-5(2) of the ITAA 1997 as the income is exempt from tax 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 worked in the Palestinian Territories for a continuous period of not less than 91 days for a private organisation on behalf of UNICEF.
There is no double tax agreement between Australia and the Palestinian Territories.
The laws of the Palestinian Territories provide for the imposition of income tax on employment income and do not generally exempt such income from income tax.
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 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 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 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 a 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 and of the following categories is general exempt for 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).
There is no double tax agreement between Australia and the Palestinian Territories. Therefore, paragraphs 23AG(2)(a) and (b) of the ITAA 1936 do not apply.
Paragraphs 23AG(2)(c) and (d) of the ITAA 1936 do not apply, as the law of the Palestinian Territories provide for the imposition of income tax on employment income and do not generally exempt such income from income tax. The relevant tax laws are found in the 'Israeli-Palestinian Interim Agreement on the West Bank and the Gaza Strip, Annex V: Protocol on Economic Relations'.
The salary and wages received were not exempt in the Palestinian Territories because of the laws (or regulations) of the Palestinian Territories corresponding to the International Organizations (Privileges and immunities) Act 1963. Accordingly, paragraph 23AG(2)(e) of the ITAA 1936 does not apply.
Paragraphs 23AG(2)(f) and (g) of the ITAA 1936 do not apply as there was no process by which Australia, or a person, became a party to an international agreement that deals with diplomatic or consular privileges and immunities.
As none of the reasons listed in subsection 23AG(2) of the ITAA 1936 apply, the salary and wages received by the taxpayer while serving in the Palestinian Territories for a private organisation on behalf of UNICEF will be exempt from income tax under subsection 23AG(1) of the ITAA 1936.
Accordingly, the salary and wages received by the taxpayer from serving in the Palestinian Territories will not be assessable income under subsection 6-5(2) of the ITAA 1997.