Issue
Are the salary and wages received by an ADF member based in the UAE as part of Operation Damask assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The salary and wages earned by an ADF member based in the UAE as part of Operation Damask are assessable under subsection 6-5(2) of the ITAA 1997.
Facts
The taxpayer is an Australian resident for income tax purposes.
The taxpayer is a member of the ADF.
The taxpayer served in the Middle East as part of Operation Damask.
The taxpayer was based in Dubai while serving in the Middle East, however Operation Damask required the taxpayer to perform duties in the UAE, Kuwait, the Kingdom of Saudi Arabia, Bahrain, Oman and Qatar.
The taxpayer has been engaged in a foreign service for a continuous period of not less than 91 days.
The taxpayer received salary and wages from the ADF in relation to that service.
There is no tax treaty between Australia and the UAE.
The law of the UAE does not provide for the imposition of income tax on employment income.
A certificate under paragraph 23AD(1)(a) of the Income Tax Assessment Act 1936 (ITAA 1936) has not been issued by the Chief of the Defence Force to the effect that the taxpayer is engaged in an eligible duty with a specified organisation in a specified area outside Australia in respect to their deployment in the Middle East.
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 from 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 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).
While serving in the Middle East the taxpayer was based in the UAE. As the law of the UAE does not provide for the imposition of income tax on any of the categories of income listed in paragraph 23AG(2)(c) of the ITAA 1936 above, the salary and wages received by the taxpayer while deployed to the Middle East, 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 ADF member based in the UAE as part of Operation Damask are assessable under subsection 6-5(2) of the ITAA 1997.