PZTL and Commissioner of Taxation (Taxation)

The Administrative Appeals Tribunal considered the dispute between PZTL (the Applicant) and the Commissioner of Taxation (the Respondent) regarding the taxability of the Applicant's foreign earnings. The Applicant sought to have his income earned during a period of service in the Middle East declared exempt from Australian income tax under section 23AG of the *Income Tax Assessment Act 1936* (Cth).

The central legal issue before the Tribunal was whether the Applicant's continuous period of foreign service was directly attributable to his deployment by the Commonwealth or an authority of the Commonwealth, as required by section 23AG(1AA)(d) of the Act. The Applicant had been recruited and employed by an independent contractor to perform duties as a Field Service Representative in the Middle East, augmenting the Australian Defence Force's efforts. The Respondent had initially denied the exemption, arguing the Applicant was not a "member of a disciplined force." However, the Respondent conceded for the purposes of the Tribunal hearing that the Applicant was a "member of a disciplined force" and that the Australian Defence Force represented the Commonwealth.

The Tribunal's reasoning focused on the interpretation of section 23AG(1AA)(d), which requires the foreign service to be "directly attributable" to a deployment by the Commonwealth or an authority thereof. Despite the concession that the Australian Defence Force represented the Commonwealth and that the Applicant was a member of a disciplined force, the Tribunal found that the Applicant's employment was fundamentally with an external government contractor. The Commonwealth had an arrangement with this contractor for the provision of services, and it was the contractor who procured and made the Applicant available to the Australian Defence Force. Therefore, the Applicant's deployment was not directly by the Commonwealth, but rather by his employer, the independent contractor.

The Tribunal affirmed the Respondent's decision, concluding that the Applicant's income was not exempt from Australian income tax. The fact that the Applicant was physically transported to the zone of operations by the Australian Defence Force was not sufficient to satisfy the requirement that his continuous period of foreign service was directly attributable to a deployment by the Commonwealth or an authority of the Commonwealth.