The Administrative Appeals Tribunal (AAT) has affirmed the ATO's decision that income a taxpayer earned working for the United States Army in Afghanistan is not exempt from Australian income tax under s 23AF of the Income Tax Assessment Act 1936 (ITAA 1936).

The taxpayer was an electrician and mechanic. During the 2010–2011 income year his American employer subcontracted his services to the United States Army in Afghanistan. He travelled there on at least four occasions, including for one period of at least four months. His role in "outside plant construction" was a critical part of the future power distribution network.

The taxpayer claimed that his 2010–2011 earnings were exempt from income tax under s 23AF of ITAA 1936. That section exempts personal services income (including salary and wages) that is attributable to a period of qualifying service on an "approved project". The period must be continuous for 91 days or more.

An "approved project" is an "eligible project" that the Trade Minister (or their delegate) is satisfied is or will be in the national interest and has approved in writing. There are various categories of "eligible project", including

  • the design, supply or installation of any equipment or facilities;
  • the construction of works; or
  • the development of an urban or a regional area.

The AAT decided that the s 23AF exemption did not apply in this case, because the taxpayer had not worked on an approved project. Although the particular project satisfied the first two categories in the definition of an eligible project, the Trade Minister (or delegate) had not approved it in writing for the purposes of s 23AF, so it was not actually an approved project. The AAT pointed out that although the Trade Minister has the discretion to approve eligible projects, the approval must be given in writing.

The AAT also commented that there was no evidence indicating that the Trade Minister (or any delegate) considered the United States Army project in Afghanistan where the taxpayer worked to be in the Australian national interest.

Re Wilson and FCT [2017] AATA 119, AAT, Ref No 2016/3489, Tavoularis SM, 1 February 2017,