Coventry and Commissioner of Taxation (Taxation)

This matter concerned an appeal by Mr Coventry against a decision of the Commissioner of Taxation regarding the taxability of his foreign earnings. Mr Coventry, an Australian resident employed by the Department of Foreign Affairs and Trade (DFAT), was posted to Islamabad, Pakistan, to manage the Australian Aid Program. The dispute centred on whether his salary and allowances earned during this posting were exempt from Australian income tax under section 23AG(1) of the *Income Tax Assessment Act 1936* (Cth), which requires that foreign earnings not be exempt from income tax in the foreign country due to specific reasons. The Administrative Appeals Tribunal was required to determine if Mr Coventry qualified as "Australian project personnel" under a Development Agreement between the Australian and Pakistani governments, and consequently, if his earnings were exempt from Pakistani income tax.

The Tribunal was tasked with interpreting the terms of the Development Agreement, specifically the definition of "Australian project personnel" and the provisions relating to personnel posted to Pakistan. The core legal issue was whether Mr Coventry's role and the funding of his salary and allowances met the criteria outlined in Article 3(b) of the Agreement, which defines Australian project personnel as Australian nationals or residents working in Pakistan on an activity under the Agreement whose salaries or other costs are funded from the Australian Government's contribution. The Tribunal also considered the implications of Article 10 of the Agreement, which grants exemptions from income taxes in Pakistan to Australian project personnel.

The Tribunal found that Mr Coventry was indeed posted to Pakistan under the Development Agreement and that his salary and allowances were funded by the Australian Government's contribution to the Official Development Assistance activities he performed. This conclusion was supported by the fact that Article 10 of the Agreement explicitly provides for income tax exemptions for "Australian project personnel" in Pakistan, and a contrary interpretation would undermine the purpose and scope of the Agreement as accepted by the Commissioner. Consequently, the Tribunal was satisfied that Mr Coventry had discharged the burden of proving his assessment was excessive.

The Tribunal set aside the Commissioner's objection decision and substituted it with a decision to allow Mr Coventry's objection in full. Accordingly, Mr Coventry was found to be exempt from Australian income tax under section 23AG(1) of the *Income Tax Assessment Act 1936* for his salary and allowances earned in the year ended 30 June 2015.