Private ruling: Exempt income
Published: January 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July

Ruling: Question and Answer | Is the military retention bonus which you received whilst deployed on a peace keeping mission assessable income? | Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You received a military retention bonus whilst you were deployed on a peace keeping mission. You were involved in foreign service for more than 91 days, after you completed 91 days of service the tax you had paid from your salary was refunded to you. The ADF pays retention bonuses to encourage serving members to remain in the ADF after they have served for a specific period of time.

Relevant legislative provisions: Section 23AG of the Income Tax Assessment Act 1936 | Section 6-5 of the Income Tax Assessment Act 1997 | Section 6-15(2) of the Income Tax Assessment Act 1997 | Section 11-15 of the Income tax Assessment Act 1997

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. Subsection 6-5(2) of the Income Tax Assessment Act 1997 (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. An ATO interpretive decision deals with the payment of retention bonuses to ADF members who are operating on a peace keeping mission in Country X. Although the location is different the income tax laws that apply in that decision are directly applicable to your circumstances. ATO ID 2003/373 states that: "a retention bonus comes within the meaning of ordinary income under subsection 6-5(2) of the ITAA 1997. A retention bonus is an additional reward payment derived by the taxpayer in the capacity as an employee" Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income. Income that is considered to be exempt income is listed in section 11-15 of the ITAA 1997. Included in this list is section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) which deals with overseas employment income. Subsection 23AG(1) of the ITAA 1936 provides that where a resident taxpayer is engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived by the taxpayer from that foreign service will be exempt from tax in Australia. 'Foreign service' includes service in a foreign country in the capacity as an employee and 'foreign earnings' include income consisting of earnings, salary, wages, commission, bonuses and allowances (subsection 23AG(7) of the ITAA 1936). For income to be exempt under section 23AG of the ITAA 1936, there must be a direct connection between the funds received and the foreign service which is carried out. A retention bonus is not considered to be a payment from foreign service as they are paid to encourage members to remain in the ADF. Therefore, the retention bonus is not exempt from tax in Australia under subsection 23AG(1) of the ITAA 1936. You were on a peace keeping mission when you received your retention bonus, ATO ID 2003/373 is directly relevant to your circumstances and as such the retention bonus you received whilst you were deployed is assessable income under subsection 6-5(2) of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.