ATO ID 2002/178: Assessability of salary and wages income derived prior to 1 July 2016 from employment in Norfolk Island - concurrent contract of less than 6 months
Date of decision: 30 May 2001
Business line: Small Business/Individual Taxpayers

Issue
Is the taxpayer's salary and wages income derived prior to 1 July 2016 from employment in Norfolk Island assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) where the income is earned under a contract of less than 6 months duration?

Decision
No. The taxpayer's salary and wages income derived prior to 1 July 2016 from employment in Norfolk Island is exempt income and not assessable under subsection 6-5(2) of the ITAA 1997 where the income is earned under a contract of less than 6 months duration as the taxpayer's intention is to remain in Norfolk Island for a period longer than 6 months.

Facts
The taxpayer is a resident of Australia. They are not a resident of Norfolk Island for tax purposes. In 2015 the taxpayer became employed in Norfolk Island under a contract of employment for a continuous period of greater than 6 months. The taxpayer undertook another short term employment contract concurrently with the original contract of employment. This short term contract is for a period of less than 6 months. At the time of entering into this short term contract the taxpayer has in excess of 6 months remaining in relation to the original contract. The duties under both contracts are to be performed wholly within the boundaries of Norfolk Island. Both contracts of employment are the result of genuine commercial dealings and neither were entered into for the purpose of avoiding liability to taxation.

Reasons for decision
Summary: 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. However, if an amount is exempt income it is not included in assessable income of a taxpayer (subsection 6-15(2) of the ITAA 1997). Section 24G of the Income Tax Assessment Act 1936 (ITAA 1936) provides an exemption from tax on certain income derived from sources in a prescribed Territory. Subsection 24B(1) of the ITAA 1936 provides that 'prescribed Territory' means Norfolk Island. Paragraph 24G(1)(e) of the ITAA 1936 provides an exemption from tax on income derived from employment, the duties of which are performed wholly or mainly in Norfolk Island. The Commissioner must also be satisfied that at the time the duties are commenced the taxpayer intended to remain in Norfolk Island for a continuous period of more than 6 months. However subsection 24G(2) of the ITAA 1936 denies the exemption, subject to subsection 24G(3) of the ITAA 1936, where the income is paid to a non resident of Norfolk Island. Subsection 24G(3) of the ITAA 1936 provides that subsection 24G(2) of the ITAA 1936 will not apply if the income resulted from a genuine commercial arrangement that was not entered into for the purpose of avoiding liability to taxation. The taxpayer's duties under both contracts will be wholly performed within the boundaries of Norfolk Island. Although the short term contract of employment is for a period of less than 6 months, the taxpayer at the time of commencing duties under that contract intended to remain in Norfolk Island for a period in excess of 6 months. Both contracts of employment are the result of genuine commercial dealings and neither were entered into for the purpose of avoiding liability to taxation. Accordingly, the income from the short term contract of employment received prior to 1 July 2016 will be exempt from tax under paragraph 24G(1)(e) of the ITAA 1936 and will therefore not be included in the taxpayer's assessable income under subsection 6-5(2) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1936 section 24B(1) section 24G paragraph 24G(1)(e) subsection 24G(2) subsection 24G(3)
Related ATO interpretative decisions: ATO ID 2001/775
Subject references: Australian external territories Exempt Income Norfolk Island Prescribed Territory