ATO ID 2007/125: Assessability of salary and wages derived by a New Zealand diplomat in Australia
Date of decision: 16 April 2007
Year of income: Year ended 30 June 2006
Business line: International Centre of Expertise

Issue
Are salary and wages received by a diplomatic agent in Australia from diplomatic service to the New Zealand Government assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. The salary and wages received by a diplomatic agent in Australia from diplomatic service to the New Zealand Government are not assessable income under subsection 6-5(2) of the ITAA 1997.

Facts
The taxpayer is a citizen of New Zealand and an Australian resident taxpayer. The taxpayer is a diplomatic agent. The taxpayer is the holder of a diplomatic passport and performs diplomatic functions in Australia. The taxpayer was posted to Australia for a set period by the New Zealand Government. About twenty months after their diplomatic posting to Australia, the taxpayer decides to stay in Australia permanently. The taxpayer gives three months resignation notice to the employer. The taxpayer receives salary from the employer during their diplomatic posting including the three months of resignation notice period.

Reasons for decision
Summary: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident taxpayer includes the ordinary income derived by the taxpayer directly or indirectly from all sources, whether in or out of Australia, during the income year. Salary and wages are considered to be ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. In determining liability to Australian tax it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act). Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except for some limited provisions). Schedule 4 to the Agreements Act contains the tax treaty between Australia and New Zealand (the New Zealand Agreement). The New Zealand Agreement operates to avoid the double taxation of income received by Australian and New Zealand residents. Article 27 of the New Zealand Agreement deals with diplomatic agents and consular officers and provides that: Nothing in this Agreement shall affect the fiscal privileges of diplomatic agents or consular officers under the general rules of international law or under the provisions of special international agreements. The two international conventions applying to diplomatic agents and consular officials are the Vienna Convention on Diplomatic Relations 1961 (the Convention) which was given the force of law under the Diplomatic Privileges and Immunities Act 1967 (DP&I Act) and the Vienna Convention on Consular Relations 1963 which was given the force of law under the Consular Privileges and Immunities Act 1972 . Article 1(e) of the Convention defines a 'diplomatic agent' as the head of the mission or a member of the diplomatic staff of the mission. Subsection 7(4) of the DP&I Act states that the provisions of the Convention: ...in so far as they provide for the exemption from tax of any income, apply, for the purposes of the application of the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997 , to assessments in respect of income of the year of income that commenced on 1 July 1967, and in respect of all income of all subsequent years of income. Article 34 of the Convention provides some of the taxation privileges of a diplomatic agent subject to certain exceptions. Article 34 of the Convention states that: a diplomatic agent shall be exempt from all dues and taxes, personal or real, national, regional or municipal,... Article 39 of the Convention states that when the functions of a person enjoying privileges and immunities have come to an end, such privileges and immunities shall normally cease at the moment when the person leaves the country, or on expiry of a reasonable period in which to do so, but shall subsist until that time, even in case of armed conflict. Therefore, the taxpayer is entitled to all the privileges under the Convention including the exemption from tax on their salary and wages until their functions have come to an end. The privileges allowed under the Convention will normally cease at the moment when the taxpayer leaves Australia, or on expiry of a reasonable period in which to do so. The taxpayer is entitled to the privileges during the three months resignation notice period as it is considered to be a reasonable period having regard to the terms of their employment contract. The salary and wages received by the taxpayer including the salary received during the resignation notice period will be exempt from Australian income tax through the operation of subsection 7(4) of the DP&I Act. Accordingly, the salary and wages received by a diplomatic agent in Australia, from diplomatic service to the New Zealand Government will not be assessable income under subsection 6-5(2) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 6-5(2) section 6-15 section 6-20
Other references: Diplomatic Privileges and Immunities Act 1967 subsection 7(4) Consular Privileges and Immunities Act 1972 Vienna Convention on Diplomatic Relations 1961 Article 1(e) Article 34 Article 39 Vienna Convention on Consular Relations 1963
Subject references: Diplomatic privileges & immunities Double tax agreements Foreign diplomats Foreign government employees Income International law International tax New Zealand Treaties