Private ruling: Zone tax offset - Commissioner's discretion
Published: October 2012
Ruling period: Year ending 30 June 2007 | Year ending 30 June 2008 | Year ending 30 June 2009 | Year ending 30 June 2010 | Year ending 30 June 2011 | Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2006

Ruling: Q1: Can you claim a zone tax offset under the Commissioner's discretion in subsection 79A(3E) of the Income Tax Assessment Act 1936 ? | A1: No

Relevant facts and circumstances: You reside on an island located off the coast of a state. There is no regular ferry service to the island. Residents must take a private vessel to a nearby island to catch the ferry service to the mainland. The travel can only be undertaken at high tide due to the prevailing reef. There are no medical facilities on the island. Emergencies will require the attendance of the Royal Flying Doctor Service. Communication is via satellite phone and internet or VHF radio. Power is provided by solar panels and a back up generator. Food is delivered to the nearby island which must then be collected and brought back to the island you reside on.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 79A | Income Tax Assessment Act 1936 Schedule 2

Reasons for decision: Summary: Under section 79A of the Income Tax Assessment Act 1936 (ITAA 1936), residents of prescribed areas of Australia, known as Zone A and Zone B, are entitled to a tax offset. The tax offset is in recognition of the disadvantages to which they are subject because of the uncongenial climatic conditions, isolation and the high cost of living in comparison with parts of Australia not included in those prescribed areas. Schedule 2 of the ITAA 1936 defines the borders of these prescribed areas. The most southerly point of the state coast that is included in one of these prescribed areas, in this case Zone B, is defined in Schedule 2 as the 'north-eastern corner of the Shire'. This point is just south of this town and is a large distance along the coastline from the closest mainland point to the island you reside on. Schedule 2 of the ITAA 1936 states that all islands forming part of Australia that lie adjacent to the coastline of the prescribed areas are also included in the prescribed areas. Schedule 2 also specifically includes some islands or groups of islands as being in a prescribed area, however the island you reside on is not one of these islands. Subsection 79A(3D) of the ITAA 1936 allows a greater tax offset for residents of 'special areas' within either Zone A or Zone B that are located more than 250 kilometres from the nearest urban area with a population of 2,500 or more as of the 1981 census. Subsection 79A(3E) allows the Commissioner the discretion to consider an area located outside these 'special areas' as being located in a 'special area' if it is an area of extreme isolation or hardship. However, this discretion may only be exercised if the area is already located within either Zone A or Zone B. In your case, you reside on an island which is located off the state coast, and is a large distance south of the Zone B boundary as defined in Schedule 2 of the ITAA 1936. The definition of 'adjacent' is not defined in Schedule 2, however the Macquarie Dictionary defines 'adjacent' as 'lying near, close, or contiguous; adjoining; neighbouring'. The island you reside on lies too far south of the Zone B boundary to be considered as being 'adjacent' to the coastline of Zone B and is not specifically included in Schedule 2 of the ITAA 1936 as a prescribed area. Therefore, as the island you reside on does not lie within a prescribed area, the Commissioner does not have any discretion to consider it as a 'special area' for the purposes of the zone tax offset. Accordingly, you are not entitled to a zone tax offset.

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