Private ruling: Exempt income
Published: August 2017
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are your salary and wages earned while deployed with the Australian Defence Force (ADF) exempt income? | A1: Yes. | Q2: Are your salary and wages earned when you returned to Australia from deployment earlier than anticipated, exempt income? | A2: No.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You are a serving member of the Australian Defence Force with the Royal Australian Navy. You were deployed to the Middle East region, where your duty was to patrol international waters. You were issued with a Certificate by the Chief of Defence for the period of deployment. During the deployment you suffered an injury which required you to return to Australia for surgery. You did not return to the deployment specified area after your surgery, instead returned to restricted duties in Australia.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5(2) | Income Tax Assessment Act 1997 subsection 6-15(2) | Income Tax Assessment Act 1997 subsection 11-15 | Income Tax Assessment Act 1936 subsection 23AD | Income Tax Assessment Act 1936 subsection 23AG | Income Tax Assessment Act 1936 subsection 23AG(1) | Income Tax Assessment Act 1936 subsection 23AG(1AA) | Income Tax Assessment Act 1936 subsection 23AG(1AA)(d) | Income Tax Assessment Act 1936 subsection 23AG(6) | Income Tax Assessment Act 1936 subsection 23AG(7)

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, whether in or out of Australia, during the income year. Salary and allowances are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997 and consequently subject to income tax unless they are exempt under the ITAA 1936 or the ITAA 1997. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not 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 23AD and 23AG of the ITAA 1936, which deals with overseas employment income. Section 23AD provides an exemption of pay and allowances of Defence Force members performing certain overseas duty. The pay and allowances earned by a person serving as a member of the Defence Force are exempt from tax if: They are earned while there is in force a certificate in writing issued by the Chief of the Defence Force to the effect that the person is on eligible duty with a specified organisation in a specified area outside Australia; and The eligible duty is not as, or under, an attache at an Australian embassy or legation. Whilst you were deployed and undertaking duties in the Middle East you were exempt from income tax under 23AD, as you were covered by a Certificate in Force. However when you returned this Certificate ceased to be in effect as you were no longer considered to be on eligible duty. Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings of an Australian resident derived during a continuous period of foreign service of not less than 91 days employment in a foreign country, are generally exempt from tax in Australia. Under subsection 23AG(6) of the ITAA 1936, a period during which a person is engaged in foreign service includes any period during which the person is, in accordance with the terms and conditions of that service, absent from work due to an accident or illness. However, foreign service is service in a foreign country and international waters is not considered to be a foreign country as it does not form part of the territory of a foreign country. As you were not performing foreign service, you do not satisfy the conditions of subsection 23AG(1). Therefore, the salary you received, when you returned from deployment will not be exempt from Australian income tax under subsection 23AG(1) of the ITAA 1936 and thus is assessable under subsection 6-5(2) of the ITAA 1997.