Mr Leow has been an Australian resident for tax purposes for 6 years. United Nations offered him a job in an engineering role. The service was to be rendered in Somalia. The employment contract agreement was made between Mr Leow and an independent foreign company. Mr Leow was paid $25,000 by the independent foreign company under United Nation’s supervision. Mr Leow was offered this job in June 2010 and he was out of Australia continuously from 1 August 2010 to 14 November 2010. Mr Leow argues that the income he received from the service rendered in Somalia is exempt under s23AG of ITTA36. This essay will discuss about the tax liability of the income he received by reviewing his residency, identifying the source of income and the use of s23AG.
Firstly it is important to identify to see whether Mr Leow is still a resident of Australia. The most relevant test used in this case is the domicile test. Domicile test is used to see if an Australian resident is still an Australian resident. This test was used on <Applegate case> to identify whether the tax payer had a place of adobe out of Australia. The court ruled that the tax payer was no longer an Australian resident, because he has a permanent place of adobe overseas. From the information given on the first paragraph, we don’t have a clear knowledge on whether Mr Leow is going to come back and that it was only a temporary contract. The reason why he came back to Australia is unknown. In the case Mr Leow, his intended length of the stay in Somalia is unknown since the information is not clear enough to identify the period term on his contract. The intention of Mr Leow coming back to Australia, if Mr Leow has abandoned any residence in Australia and that he had a particular place in Somalia is not existent from the information given. Though in Mr Leow’s case, it can be argued that Mr Leow did not have a permanent place of adobe in Somalia, and assuming Mr Leow has not sold his resident in Australia, Mr Leow satisfies the domicile test as a resident of Australia as his place of adobe is still in Australia.
Secondly, the source of the income received from Mr Leow’s service rendered needs to be identified for it to be taxed appropriately. To the extent of the information given, the contract was made (place of contract made unknown) between Mr Leow and the Independent Foreign Company and that the service was rendered in Somalia. The source of income can be determined from either which signing of the contract took place or the place where he rendered his service. From the information given, it is unclear where the signing of the contract took place. But it is evident that Mr Leow rendered his service as an engineer in Somalia. If the skill level of Mr Leow’s carrying job title and that the job requires highly skilled engineers, the place where the contract was made will be relevant in deciding the source of income. Otherwise, where the service was rendered will become relevant. If Mr Leow’s providing a highly skilled service, the place where he made the contract will determine his source of income. From the information given, it is likely that Mr Leow signed the contract in Australia when he received the offer in June 2010. Therefore, the source of income is from Australia and shall be taxed accordingly. Otherwise, the place where he performed such work will determine his source of income. Since Mr Laow rendered his service in Somalia, the source of income is from foreign grounds and the income will be tax accordingly.
Thirdly, there is a possibility of Mr Leow’s income being listed as an exempt income. The s23AG lists several circumstances which determine whether an income is exempted or isn’t exempted. This is a critical step to find out if Mr Leow is liable to be taxed on the amount he received during his service in Somalia. In s23AG(1) points out if a tax payer conducts service overseas for not less than 91days, the income earned is exempt. Under this section Mr Leow’s income will be exempt as Mr Leow was continuously in Somalia from 1 August 2010 to 14 November 2010 (135days excluding end date). S23AG(6) further explains the meaning of ‘engaged in foreign services’ which says the duration measured should only be between the date Mr Leow started his service and finish his service. The information given is not clear as to when Mr Leow has actually started and finished his service while he was in Somalia. There are several conditions which allow or disallow exemptions even when it is allowed in s23AG(1). S23AG(1AA) and s23AG(2) lists the conditions for exemptions and non-exemptions of income. Mr Leow will need to prove that he does meet all the conditions that his income is exempt. From research, it is shown that Somalia does not have Double Tax Agreement with Australia. Somalia does have an income tax system but does not specify that foreigner who renders service there is also taxed on income. If Mr Leow has paid income tax for the amount he received, then Mr Leow will most likely not liable to pay tax in Australia for his income made from Somalia. If Mr Leow didn’t pay income tax, then Mr Leow is most likely liable to pay income tax for the money earned in Somalia.

By Looking at the sections, legislations and cases, matching them and comparing it with Mr Leow’s case, it is reasonable to believe Mr Leow is a resident of Australia during the period he was in Somalia assuming he had intentions to come back; it is reasonable to believe the source of income was foreign as the services were conducted in Somalia; and under the s23AG, it is reasonable to believe that the income earned overseas most likely be exempt under s23AG(1).