Private ruling: Assessability of retention bonus payment
Published: October 2012
Ruling period: Year ended 30 June 2012. | Year ended 30 June 2013.
Date scheme commenced: 1 July 2011.

Ruling: Question and answer: | Is the retention bonus payment that you received from the Australian Defence Force (ADF) whilst not in a war zone assessable income? | Yes.

Relevant facts and circumstances: You are a serving member of the ADF. You received a retention bonus. You became eligible for the retention bonus while you were serving in a war zone. You received the payment after you left the war zone.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2). | Income Tax Assessment Act 1997 Section 6-15. | Income Tax Assessment Act 1997 Section 11-15. | Income Tax Assessment Act 1936 Section 23AD. | Income Tax Assessment Act 1936 Subsection 23AD(1). | Income Tax Assessment Act 1936 Subsection 23AD(2).

Reasons for decision: Detailed Reasoning - Retention benefit: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the income of an Australian resident includes ordinary income derived from all sources, whether in or out of Australia, during the year of income. A retention benefit or bonus is an additional reward payment derived by a taxpayer in the capacity as an employee (Dean & Anor v. Federal Commissioner of Taxation (1997) 78 FCR 140; (1997) 37 ATR 52; 97 ATC 4762 (Deans Case )). A retention benefit is also considered ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997 and therefore will be classified as assessable unless section 23AD of Income Tax Assessment Act 1936 (ITAA 1936) applies. The retention benefit is derived at the time it is received ((1958) 9 TBRD Case J20; 7 CTBR (NS) Case 130; and (1958) 9 TBRD Case J60; 8 CTBR (NS) Case 50 ). In your situation you received the payment of the retention benefit on the date that you were paid the amount. | Detailed Reasoning - Application of section 23AD of the ITAA 1936: Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23AD of the ITAA 1936 which deals with pay and allowances received by Australian Defence Force (ADF) members performing certain overseas duty. Subsection 23AD (1) of the ITAA 1936 provides that the pay and allowances earned by a person serving as a member of the Australian Defence Force are exempt from tax if: a) 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 b) the eligible duty is not as, or under, an attach at an Australian embassy or legation. Subsection 23AD(2) of the ITAA 1936 provides that the regulations may declare that duty with a specified organisation, in a specified area outside Australia and after a specified day, is eligible duty for the purposes of the exemption. For section 23AD of the ITAA 1936 to apply, the receipt of the retention benefit would need to fall on a date where you were eligible duty with a specified organisation in a specified area outside Australia, even if the receipt is not connected to one of those eligible duties. In your situation the payment of your retention benefit occurred after the date of eligible duty. Therefore, the benefit was not earned while you were on eligible duty and is not exempt under section 23AD of the ITAA 1936. Accordingly, the payment of the retention benefit you received after leaving the war zone is assessable income under subsection 6-5(2) of the ITAA 1997.

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