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ATO Interpretative Decision

ATO ID 2010/118

Income Tax
Exempt income: 'defence civilian' deployed outside Australia

FOI status: may be released

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.


Issue

Is an APS employee of the Department of Defence deployed outside Australia, who is a 'defence civilian' within the definition of that term in the Defence Force Discipline Act 1982 (DFDA 1982), 'serving as a member of the Defence Force' for the purposes of section 23AD of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

No.

Facts

The taxpayer is a resident of Australia for income tax purposes.

The taxpayer is an APS employee of the Department of Defence (a person engaged under the Public Service Act 1999 ).

The taxpayer received a deployment order for the purpose of performing an operational role in a specified area outside Australia.

For the duration of the deployment the taxpayer was subject to ADF command and control.

The taxpayer consented in writing to subject themself to Defence Force discipline during the deployment and had the status of a 'defence civilian' under the DFDA 1982.

Under section 3 of the DFDA 1982 'defence civilian' is defined to mean:

   a person (other than a defence member) who;

   

(a)
 with the authority of an authorized officer, accompanies a part of the Defence Force that is:
(i)
 outside Australia; or
(ii)
 on operations against the enemy; and
(b)
 has consented, in writing, to subject himself or herself to Defence Force discipline while so accompanying that part of the Defence Force.

And 'defence member' is in turn defined in section 3 to mean:

(a)
 a member of the Permanent Navy, the Regular Army or the Permanent Air Force; or
(b)
 a member of the Reserves who:
(i)
 is rendering continuous full-time service; or
(ii)
 is on duty or in uniform.

The Department of Defence paid the taxpayer a salary and an operational support allowance for the duration of the deployment.

Reasons for Decision

Section 23AD of the ITAA 1936 exempts from tax the pay and allowances earned by persons serving as members of the Defence Force on eligible duty outside Australia. The opening words of subsection 23AD(1) of the ITAA 1936, accordingly, set out the threshold requirement for entitlement to the exemption, namely, that the person must be 'serving as a member of the Defence Force'.

The phrase 'member of the Defence Force' is not defined in the ITAA 1936 or in the Income Tax Assessment Act 1997 (ITAA 1997). And the Replacement Explanatory Memorandum which accompanied the Taxation Laws Amendment Bill (No.2) 1993 introducing section 23AD of the ITAA 1936 does not shed much light on its meaning. It relevantly states:

    Exemption of pay and allowances of Defence Force members performing certain duty

    Use of the regulations in the future

   Proposed new section 23AD will exempt from income tax the pay and allowances of ADF personnel who have a certificate from the Chief of Defence Force (CDF) stating that they are on eligible duty (duty as, or under, an attache at an Australian embassy or legation is not eligible for the exemption). The proposed section will serve the same function as existing section 23AC but will enable the Income Tax Regulations to prescribe the service eligible for the concession... (Emphasis added.)

But the Explanatory Memorandum which accompanied the Income Tax Assessment Bill 1965 introducing section 23AC of the ITAA 1936, a cognate provision, is more helpful. It relevantly states:

    Clause 8 : Exemption of Pay and Allowances of Members of the Defence Force serving in Special Areas

   The purpose of this clause is to provide an exemption from income tax in respect of pay and allowances earned by members of the Defence Force...

   ...

   Sub-section (1.) of the proposed section 23AC is the operative provision. It provides that the pay and allowances earned by a member of the Defence Force, i.e ., the Naval Forces, the Military Forces, and the Air Force , during a period of special service are exempt from income tax. (Emphasis added.)

It suggests that a 'member of the Defence Force' refers to a member of Australia's Naval, Army and Air Forces. Support for this view is provided by a Taxation Board of Review decision, (1986) 29 CTBR (NS) 379 Case 51 ; Case T39 86 ATC 330 ( Case 51 ). In that decision the Board considered the meaning of the same phrase in section 79B of the ITAA 1936. It unanimously held that a defence civilian is not a member of the Defence Force for the purposes of section 79B. Chairman H.P. Stevens reasoned as follows:

   7. The term Defence Force is not defined in the Income Tax Assessment Act and it was the taxpayer's submission that within the terms of the Defence Force Discipline Act he was a "defence civilian" - inter alia "a person (other than a defence member) who (a)... accompanies a part of the Defence Force that is - (i) outside Australia; or (ii) on operations against the enemy" - and that it was the clear intention that such person is part of the Defence Force. I am unable to agree for I think it is obvious that the term Defence Force - particularly as capitals are used - has not an ordinary meaning but one flowing from the Defence Act . The Defence Force Discipline Act itself constantly uses the term Defence Force and, whilst for certain purposes refers to a person "being a defence civilian or a defence member" - inter alia "a member of the Permanent Naval Forces, the Australian Regular Army, The Regular Army Supplement or the Permanent Air Force" - it also refers to the Defence Force and to members of the Defence Force in such terms as to indicate that a defence civilian is not a member of the Defence Force.

   8. I should add that, even if it could be said a defence civilian was a part of the defence force, there still would be the question of whether he was in fact "serving" as a member thereof. As set out in para 5 re "employed in the service of an Australian force" the taxpayer was thus "serving" as a member of the APS rather than as a member of the Defence Force.

In the absence of reasons suggesting otherwise, this same meaning should therefore be given to the same phrase appearing in section 23AD of the ITAA 1936 (see Craig Williamson Pty Ltd v. Barrowcliff [1915] VLR 450 at 452 and Registrar of Titles (WA) v. Franzon (1975) 132 CLR 611 at 618).

Expanding on the reasons given above by the Taxation Board of Review in Case 51 , the meaning of the term 'Defence Force' in the Defence Act 1903 (DA 1903) will be relevant in determining the meaning of the phrase 'member of the Defence Force' in section 23AD of the ITAA 1936 (see Federal Commissioner of Taxation v. Imperial Chemical Industries of Australia and New Zealand (1971) 127 CLR 529; (1971) 3 ATR 321; (1971) 72 ATC 4213). Specifically, section 30 of the DA 1903 states: 'The Defence Force' consists of the 'Australian Navy, the Australian Army and the Australian Air Force'. The identical use of capitals in the same phrase in section 23AD of the ITAA 1936 (noted in relation to 79B by the Board decision above), together with the use of the definite article 'the', suggests that the legislature intended that the expression 'the Defence Force' in section 23AD of the ITAA 1936 bear the same meaning it does in the DA 1903.

Accordingly, a 'member of the Defence Force' in section 23AD of the ITAA 1936 is confined to those appointed or enlisted as members of the Australian Navy, Army and Air Forces. This interpretation is broadly consistent with the definition of 'defence member' in section 3 of the DFDA 1982. The definition of 'defence civilian' in section 3 of the DFDA 1982, on the other hand, expressly excludes a 'defence member' as defined in that section. The view that a 'defence civilian' is not a member of the Defence Force is reinforced by the use of the words 'accompanies' and 'accompanying' in the definition of 'defence civilian' in section 3 of the DFDA 1982 which indicate that they are distinct from and do not form a part of the Defence Force.

As the taxpayer is not appointed or enlisted as a member of the Australian Navy, Army or Air Forces, they are not a 'member of the Defence Force' within subsection 23AD(1) of the ITAA 1936. Furthermore, as the taxpayer serves outside Australia in a civilian capacity as an APS employee, they are not 'serving' as a member of the Defence Force. The taxpayer therefore does not satisfy the threshold condition in subsection 23AD(1) of the ITAA 1936.

Date of decision: 14 May 2010

Year of income:Year ended 30 June 2008
 Year ended 30 June 2009

Legislative References:
Income Tax Assessment Act 1936
   section 23AC
   section 23AD
   subsection 23AD(1)
   section 79B

Defence Act 1903
   section 30

Defence Force Discipline Act 1982
   section 3

Case References:
Case 51
   (1986) 29 CTBR(NS)

Case T39
   86 ATC 330

Related Public Rulings (including Determinations)
Income Tax Ruling IT 2380 (withdrawn)
Taxation Ruling TR 95/17

Other References
Explanatory Memorandum to the Income Tax Assessment Bill 1965
Replacement Explanatory Memorandum to the Taxation Laws Amendment Bill (No.2) 1993

Keywords
International CoE
International tax
Foreign income
Foreign salary & wages
Exempt income

Date of publication: 21 May 2010

ISSN: 1445-2782

 


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