Commonwealth Numbered Acts

TAXATION LAWS AMENDMENT ACT (No. 2) 1991No. 100, 1991 - SECT 19

19. Section 23AG of the Principal Act is amended:

   (a)  by omitting from subsection (1) "365" and substituting "91";

   (b)  by omitting subsections (2), (3), (4) and (5) and substituting the
        following subsections:

"(2) An amount of foreign earnings derived in a foreign country is not exempt
from tax under this section if the amount is exempt from income tax in the
foreign country only because of any of the following:

   (a)  a law of the foreign country giving effect to a double tax agreement;

   (b)  a double tax agreement;

   (c)  provisions of a law of the foreign country under which income covered
        by any of the following categories is generally exempt from income
        tax:
    (i)   income derived in the capacity of an employee;


        (ii)   income from personal services;

        (iii)  similar income;

   (d)  the law of the foreign country does not provide for the imposition of
        income tax on one or more of the categories of income mentioned in
        paragraph (c);

   (e)  a law of the foreign country corresponding to the International
        Organizations (Privileges and Immunities) Act 1963 or to the
        regulations under that Act;

   (f)  an international agreement to which Australia is a party and that
        deals with:

        (i)    diplomatic or consular privileges and immunities; or

        (ii)   privileges and immunities in relation to persons connected with
               international organisations;

   (g)  a law of the foreign country giving effect to an agreement covered by
        paragraph (f).

"(3) If the income of a taxpayer of a year of income consists of an amount
that is exempt from tax under this section (in this section called the `exempt
amount') and other income, the amount of tax (if any) payable in respect of
the other income is calculated using the formula:
Notional gross tax
             Notional gross      x     Other taxable

             taxable income               income
where: `Notional gross tax' means the number of whole dollars in the amount of
income tax that would be assessed under this Act in respect of the taxpayer's
taxable income of the year of income if:

   (a)  the exempt amount were not exempt income; and

   (b)  the taxpayer were not entitled to any rebate of tax; `Notional gross
        taxable income' means the number of whole dollars in the amount that
        would have been the taxpayer's taxable income of the year of income if
        the exempt amount were not exempt income; `Other taxable income' means
        the amount (if any) remaining after deducting from so much of the
        other income as is assessable income:

   (d)  any deductions allowable to the taxpayer in relation to the year of
        income that relate exclusively to that assessable income; and

   (e)  so much of any other deductions (other than apportionable deductions)
        allowable to the taxpayer in relation to the year of income as, in the
        opinion of the Commissioner, may appropriately be related to that
        assessable income; and

   (f)  the amount calculated using the formula in subsection (4).

"(4) The formula referred to in paragraph (3) (f) is:
Apportionable
             deductions x            Other taxable income

                              Apportionable   +   Notional gross

                              deductions          taxable income
where: `Apportionable deductions' means the number of whole dollars in the
apportionable deductions allowable to the taxpayer in relation to the year of
income; `Other taxable income' means the amount that, apart from paragraph (3)
(f), would be represented by the component `Other taxable income' in
subsection (3); `Notional gross taxable income' means the number of whole
dollars in the amount that would have been the taxpayer's taxable income of
the year of income if the exempt amount were not exempt income.";

   (c)  by omitting subsection (6H);

   (d)  by inserting in subsection (7) the following definitions: " `double
        tax agreement' means:

   (a)  double tax agreement within the meaning of Part X; or

   (b)  the Timor Gap treaty; `income tax', in relation to a foreign country:

   (a)  in all cases - does not include a municipal income tax; and

   (b)  in the case of a federal foreign country - does not include a State
        income tax;".