Private ruling: Retention benefit
Date of advice: 11 August 2015
Published: August 2015
Ruling period: 1 July 2014 to 30 June 2015.
Date scheme commenced: 1 July 2014.

Ruling: Questions and answers: | Is the retention benefit paid to you under the provisions of the Military Superannuation and Benefits Act 1991 exempt from income tax in Australia? | No.

Relevant facts and circumstances: You were to a 23AD zone. You received a retention benefit paid to you. At the time you received the retention benefit you indicate you were taking leave in Australia. You were not deployed in a 23AD zone when the retention benefit was paid to you.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1936 Section 23AD

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes all the ordinary income they derive from all sources in and out of Australia in an income year. Ordinary income includes salary and wages and such amounts are generally taken to have been 'derived' at the time they are received. Subsection 6-5(4) of the ITAA 1997 provides that in working out when an amount of ordinary income (such as salary and wages) is derived, the amount is taken to have been received as soon as it is applied or dealt with in any way on the taxpayer's behalf or as the taxpayer directs. For example, a taxpayer who has an amount of salary or wages deposited into a nominated bank account by an employer is taken to have derived the salary or wages on the date the amount is credited to the account. This is the date the amount is taken to have been applied or dealt with on the taxpayer's behalf or as the taxpayer directed for the purposes of subsection 6-5(4) of the ITAA 1997. A retention benefit paid under the provisions of the Military Superannuation and Benefits Act 1991 (MSBA 1991) is an amount of salary and wages for taxation purposes. Such an amount will be assessable in Australia under the provisions of section 6-5 of the ITAA 1997 unless it is made exempt from taxation in Australia by another provision of the tax law. A retention bonus 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 ). The fact that the receipt may have to be repaid if certain events subsequently occur does not affect the character of the receipt (Case A59 69 ATC 334; 15 CTBR (NS) Case 34). Therefore, the retention benefit is earned by the taxpayer at the time it is received. While it will usually be the case that section 23AD of the ITAA 1936 will apply to the pay and allowances earned by an ADF member from eligible duty, there is no requirement in section 23AD of the ITAA 1936 that the pay and allowances be connected to that eligible duty. Rather, section 23AD of the ITAA 1936 only requires that the pay and allowances are earned by an ADF member while there is a certificate in place declaring that the member is on eligible duty. You are only taken to be on eligible duty when in a CDF specified area outside Australia. At the time you received the retention benefit, the relevant certificate was in place declaring that ADF members deployed overseas as part of the particular military operation were on eligible duty but you had since returned to Australia. Therefore, the retention benefit is not exempt under section 23AD of the ITAA 1936 and will be assessable under subsection 6-5(2) of the ITAA 1997.