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The Federal Court (Graham J) has held that income derived by 7 international pilots, all residents of Australia, was not exempt from Australian income tax under s 23AG ITAA 1936, notwithstanding that as part of their duties, the pilots were flying planes in international airspace. The pilots were all based in Australia, and commenced and concluded their duty cycles in Australia. The Court said, at paras 93 and 94:

"93 Section 23AG exempts salaries from tax in Australia where they are derived by persons engaged in service in a particular foreign country and the particular foreign country is the base from which they derive those salaries. The section was not directed at exempting earnings of international airline aircrew based in Australia from tax.

94 It is fallacious to say that a person who is a resident of Australia, whose home is in Australia, whose Home Base or Preferred Port is in Australia and whose duty cycles begin and end in Australia is engaged in service in a foreign country in the capacity of an employee within the meaning of s 23AG of the 1936 Act. The section is concerned with persons who are "actually on the job" in the particular overseas country in which their foreign earnings are derived."

Overseas Aircrew Basing Limited v FCT [2009] FCA 7 (Federal Court, Graham J, 15 January 2009).

For a copy of the decision, go here.

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