REPLACEMENT Explanatory Memorandum
(Circulated by the authority of the Treasurer the Hon John Dawkins, M.P.)THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY THE House of Representatives TO THE BILL AS INTRODUCEDChapter 4 Income tax exemption for Defence Force and Federal Police personnel serving in certain areas
Summary of proposed amendments
Purpose of amendment: The proposed amendments will:
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- exempt from income tax the pay and allowances of the members of the Australian Defence Force (ADF) serving in the area formerly known as Yugoslavia as a part of the United Nations peacekeeping force
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- exempt from income tax the pay and allowances of ADF personnel serving with Operation Restore Hope and the United Nations Operation in Somalia (UNOSOM)
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- exempt from income tax the pay and allowances of Australian Federal Police (AFP) members serving with the United Nations Transitional Authority in Cambodia (UNTAC)
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- enable prescription by the Income Tax Regulations in the future where the Government decides to grant income tax exemption to personnel serving with a particular organisation in a particular area
Date of effect:
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- The amendments to section 23AC apply from the 1991-92 year of income in the case of former Yugoslavia and from the 1992-93 year of income for Somalia.
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- The new section 23ADA and the amendments to section 23AB apply from the 1991-92 year of income.
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- The new section 23AD will apply from the date of Royal Assent.
Background to the legislation
The existing legislation provides an income tax exemption to those ADF members serving with the United Nations Advance Mission in Cambodia and the United Nations Transitional Authority in Cambodia. The Bill will extend these concessions to ADF personnel serving in Somalia and former Yugoslavia and to AFP personnel serving in Cambodia.
To simplify administrative procedures in the future, a new provision will be added which will permit other areas, to which Australian defence forces may be posted, to be prescribed in the Regulations instead of amending the Income Tax Assessment Act.
The proposed change is to continue the policy of extending concessional income tax treatment to ADF personnel posted by the Government to certain overseas localities. A similar exemption is to be provided to AFP personnel serving in Cambodia.
As the law now stands, an amendment is required to the ITAA every time a country or locality is designated as an operational area. This process is cumbersome given the number of operational areas which have been designated over recent years.
When do the new exemptions apply?
The income tax exemptions apply to the areas from:
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- 12 January 1992 for the area formerly known as Yugoslavia;
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- 20 October 1992 for Somalia; and
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- 18 May 1992 for the AFP operations in Cambodia.
In the past, the exemption has applied from the date of departure of the personnel from Australia until their return. It is proposed that the exemption will now apply only during the period of time spent by the personnel in the operational area.
Explanation of proposed amendments
Income of certain persons serving with an armed force under the control of the United Nations
As it now stands, section 23AB provides an income tax rebate for pay and allowances received by persons serving with a United Nations armed force.
Because the new section 23ADA will provide an income tax exemption for the pay and allowances, it is necessary that section 23AB be amended to ensure that AFP personnel serving with UNTAC are not entitled to both a rebate and an income tax exemption.
AFP personnel serving with UNTAC will again be entitled to the rebate after the income tax exemption under new section 23ADA ceases to apply.
The AFP in Cambodia will, therefore, be given the same concessional tax treatment as the ADF presently enjoy (section 79B provides a similar rebate for the ADF [Clause 19]) . [Clause 16]
Exemption of pay and allowances of members with Defence Force serving in operational areas
A technical explanation of how section 23AC operates
Section 23AC exempts from income tax the pay and allowances of ADF personnel during a period of 'operational service' in an 'operational area'.
An area covered by the section 23AC exemption is defined as 'an operational area'.
The amendment will include the former Yugoslavia as an operational area with effect from 12 January 1992 and Somalia with effect from 20 October 1992.
To be eligible for the exemption, ADF personnel have to be on 'operational service' in an operational area. 'Operational service' requires the ADF members serving in the new operational area to have a certificate from the Chief of the Defence Force (CDF). This certificate shows the period of allotment and it must state that the allotment for duty is in the operational area.
The amendments will require new certificates to be in respect of service with:
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- a United Nations peacekeeping force in the case of former Yugoslavia; or
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- in the case of Somalia - either Operation Restore Hope or the United Nations Operation in Somalia (UNOSOM).
The issue of the certificate of allotment from the CDF is in addition to the standard procedures used by the ADF in posting personnel for duty. When members are sent to Somalia, for example, the normal procedures associated with any posting would occur as well as a certificate being issued by the CDF stating that they have been allotted for duty with either Operation Restore Hope or UNOSOM for a certain period. This certificate may be issued retrospectively depending on the date which the legislative amendments to the Act are proclaimed.
The allotment procedure is used in order to ensure that any ADF personnel who may be serving or visiting in either of the operational areas for reasons unconnected with the specified force or operation are excluded from the exemption.
In the past, the exemption has applied from the date of departure of the personnel from Australia until their return. The exemption will now apply only during the period of time spent by the personnel in the operational area.
The period will commence at the time of the member's arrival in the area or at the date of allotment shown in the certificate from the CDF, whichever is the later.
The period will end either when the person leaves the operational area, the allotment period ends as specified in the certificate or a termination date is prescribed, whichever is the earliest.
Under the existing provisions, section 23AC must be amended to specify the date an area ceases to be an operational area.
The amendment proposes to prescribe the termination date by the Regulations for the new operational areas of Somalia and the former Yugoslavia, and the existing area of Cambodia. [Clause 17]
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. As the law now stands, an amendment is required to section 23AC every time a country is designated as an operational area. This process is cumbersome given the number of operational areas which have been designated in recent years.
The term 'eligible duty' will replace the concept of operational service in section 23AC. It will relate to the period a person serves with a specified organisation in a specified area after a specified date.
These criteria will be prescribed by the Regulations and will restrict the exemption to those persons who satisfy all of the criteria.
'Specified organisation' is equivalent to the allotment for duty in section 23AC with a particular operation or force; for example, a United Nations peacekeeping force.
'Specified area' replaces the term 'operational area' and covers an area designated as eligible for the concession.
'Specified date' is the earliest date from which service in a specified area with a specified organisation can be eligible for the income tax exemption. This is equivalent to the date the area becomes an operational area under section 23AC. The specified date may be, for example, the date that hostilities begin in a region or the date on which Australian forces are committed by the Government to serve in the area.
Certificate from the Chief of Defence Force
The certificate from the CDF will reflect the new terms described above and will serve the same purpose as certificates issued under section 23AC.
Any hospital treatment as a result of illness contracted or injury sustained during the duty will also be treated as eligible duty. This is consistent with section 23AC. [Clause 18]
Exemption of pay and allowances of Australian Federal Police members serving with UNTAC
Proposed section 23ADA will operate along similar lines to new section 23AD. It will exempt from income tax the pay and allowances of AFP personnel serving in Cambodia on or after 18 May 1992 where there is a certificate from the Commissioner of Police of the Australian Federal Police stating that the service is with the United Nations Transitional Authority in Cambodia.
Certificate from the Commissioner of Police
The certificate from the Commissioner comes into force at the time the member arrived in Cambodia, the time specified in the certificate or 18 May 1992, whichever date is the latest; and will end on the earliest of the date of the member's departure from Cambodia, the time specified in the certificate or a date specified in the Regulations.
The AFP with UNTAC will receive the same treatment as their ADF counterparts and their period of service will include any period of hospital treatment as a result of illness contracted or injury sustained during their duty.
The certificate from the CDF or the Police Commissioner, as applicable, (or a delegate of the relevant person) verifying eligible duty is effective until a certificate of revocation is signed. The certificate of revocation is a disallowable instrument under the Acts Interpretation Act 1901, which means that it must be tabled in and may be disallowed by Parliament. [Clause 18]