Assessability of employment income received by an Australian resident while working in Kuwait

Are the salary and wages received by the taxpayer, for services performed in Kuwait, assessable under subsection 6-5 of the Income Tax Assessment Act of 1997 (ITAA 1997)?

Yes. The salary and wages received by the taxpayer, for services performed in Kuwait, are assessable under subsection 6-5 of the ITAA 1997.

The taxpayer is a resident of Australia for tax purposes.

The taxpayer has been engaged in continuous foreign service for more than 91 days.

There is no tax treaty between Australia and Kuwait.

The law of Kuwait does not provide for the imposition of income tax on employment income.

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 Income Tax Assessment Act of 1936 (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 Organisations (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 tax treaty between Australia and Kuwait so the domestic income tax provisions are considered only. Kuwait does not provide for the imposition of income tax on any of the categories of income listed above, hence the salary and wages received by the taxpayer from working in Kuwait will not be exempt from income tax under subsection 23AG(1) of the ITAA 1936 because paragraph 23AG(2)(d) of the ITAA 1936 applies.

Therefore, the salary and wages received by an Australian resident taxpayer working in Kuwait are assessable under subsection 6-5(2) of the ITAA 1997.