Private ruling: Assessable income
Published: April 2014
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Question and answer | Are the salary and wages you earned while employed with the Country Y Goverment in Australia exempt from income tax in Australia? | No.

Relevant facts and circumstances: You are a Country Y Citizen. You accepted an offer of employment with the Country Y Government situated in Australia. At the time you accepted the offer you were living in Australia and had been granted Australian permanent residency. As a consequence of your employment you are required to advise/act as an agent on behalf of the Country Y Government to assist enterprises that are looking to establish themselves in the Australian market.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Section 768-100

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 wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. In determining liability to Australian tax on income received by consular officers, staff, and members of their families, it is necessary to consider not only the domestic tax laws but also the Consular Privileges and Immunities Act 1972 (CPIA). The CPIA gives domestic legal effect to the agreements Australia has made as a party to Country Y's convention). Specifically, subsections 5(1) and 5(4) of the CPIA gives effect to Article 49 of the convention, which concerns the exemption of income from taxes. Article 49 of the Convention makes reference to the exemption from income tax for all consular officers, employees, and members of their families forming part of their households, but with the exception of tax on 'private income' having its source in Australia. Salary and wages from consulate employment is 'private income' from sources in Australia within the meaning of the CPIA, therefore Article 49 of the CPIA does not operate to exempt your employment income from being assessable in Australia. Where the specific convention applies, the following income of diplomatic or consular representatives, their staff and family is exempt from Australian tax by virtue of the Diplomatic Privileges and Immunities Act 1967 (DPIA): • the official salary and foreign source income of career consular heads and officers and of full-time technical and administrative staff; • the official salary of honorary consular heads and officers and of full-time domestic staff. However, by virtue of Article 71 of the convention, there is no exemption in respect of the official income of honorary consuls who are nationals of, or permanent residents in, Australia ( Morris v. Federal Commissioner of Taxation 20 ATR 1666;(1989) 25 FCR 556;89 ATC 5303 ); and • the foreign source income of non-working members of the families forming part of the household of career consular heads and officers, and of the full-time non-domestic staff members (but in the latter case only when the head of the post is a career diplomat). As you are a permanent resident of Australia, the DPIA will not apply to exempt your income from being assessable in Australia. Therefore is no provision in either the CPIA or the DPIA that will apply to exempt your employment income from being assessable in Australia. Section 768-100 of the ITAA 1997 provides that the official salary and foreign source income derived by foreign consular and diplomatic representatives and their official staff is exempt from tax in Australia where: • they are not covered by the specific c onvention ; and • they are not Australian citizens or ordinarily resident in Australia ( Taxation, Commissioner of (Cth) v. Efstathakis (1979) 25 ALR 148;(1979) 25 ALR 148;(1979) 38 FLR 276;79 ATC 4256;9 ATR 86 7); and • the relevant country has enacted reciprocal tax exemption arrangements for Australian consular and diplomatic representatives and their staff. As you are a permanent resident of Australia, section 768-100 of the ITAA 1997 will not apply to exempt your salary and wages from being assessable in Australia. Therefore, your salary and wages that you derive from being employed by the Country Y Embassy is assessable in Australia under subsection 6-5(2) of the ITAA 1997.