ATO Interpretative Decision
ATO ID 2003/373 (Withdrawn)
Retention bonus payments paid to Bougainville Peace Monitoring group
FOI status: may be released
||This ATO ID is withdrawn. The views expressed in the ATO ID are current. The ATO ID contains information which is expressed in Employment income (QC 31914).
||This document has changed over time. View its history.
Status of this decision: Decision withdrawn 22 September 2017.
|CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.|
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Is the retention bonus received by a member of the Australian Defence Force (ADF) while deployed as part of the Peace Monitoring Group on the island of Bougainville assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes. The retention bonus received by a member of the ADF while deployed as part of the Peace Monitoring Group on the island of Bougainville is assessable income under subsection 6-5(2) of the ITAA 1997.
The taxpayer is a member of the ADF and is also a resident of Australia for income tax purposes.
The taxpayer is deployed to the island of Bougainville as part of the Peace Monitoring Group for a continuous period of not less than 91 days.
The salary and wages earned by the taxpayer for service on the island of Bougainville are exempt under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936).
The ADF offers the taxpayer a bonus (the retention bonus) to remain as part of the ADF for a period of three years.
While on deployment to Bougainville, the taxpayer executes an agreement (the retention agreement) with the ADF to remain as part of the ADF. If the specified period of service is not completed, the taxpayer is required to repay to the ADF, a proportion of the retention bonus.
The retention bonus is paid while the taxpayer is deployed to Bougainville.
Reasons for Decision
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.
The retention bonus comes within the meaning of ordinary income under subsection 6-5(2) of the ITAA 1997. The retention bonus is an additional reward payment derived by the 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).
Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.
Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23AG of the 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 the purposes of section 23AG of the ITAA 1936, there must be a direct connection between the entitlement to the foreign earnings and the foreign service for the payment to be considered as derived 'from that foreign service'. The retention bonus is not considered to be a payment 'from that foreign service' as it was paid to remain as a member of the ADF. Therefore, the retention bonus is not exempt from tax in Australia under subsection 23AG(1) of the ITAA 1936.
Accordingly, the retention bonus received by a member of the ADF while deployed as part of the Peace Monitoring Group on the island of Bougainville is assessable income under subsection 6-5(2) of the ITAA 1997.
Date of decision: 2 May 2003
|Year of income:||Year ended 30 June 2002|
| ||Year ending 30 June 2003|
| ||Year ending 30 June 2004|
Income Tax Assessment Act 1936
Income Tax Assessment Act 1997
Dean & Anor v. Federal Commissioner of Taxation
(1997) 78 FCR 140
(1997) 37 ATR 52
97 ATC 4762
Defence force overseas service
Papua New Guinea
Siebel/TDMS Reference Number: 3541973
Business Line: Small Business/Individual Taxpayers
Date of publication: 23 May 2003