Department of Defence Clients – Zone Tax Offset
Mar 21, 4 years ago

Department of Defence Clients – Zone Tax Offset

Eligibility rules change for zone tax offset claims in 2016/2017

From the 2016 income year, any entitlement to the zone tax offset is purely based on the location of an individual’s ‘usual place of residence’ within a prescribed zone (for a specified time period).

This concept replaces the traditional, and wider, residence test for the offset, which required an individual either to reside, or simply be physically present, in a prescribed zone for a prerequisite number of days.

In particular, if a taxpayer was a resident of Zone A for zone tax offset purposes, but had actually physically been in the special area of Zone A (either because of work or even a holiday) for part of the income year (but less than 182 days), then the Commissioner would exercise his discretion*, and allow the rebate to be calculated on a proportional basis according to the period of time spent in Zone A and in the special area.

This would often result in an uplift of the total value of the zone tax offset for such a taxpayer.

Unfortunately, the ATO has confirmed that, while its legislative discretion still remains under S.79A(2)(f) of the ITAA 1936, following the recent legislative changes it will no longer be exercised in a similar manner where a taxpayer’s usual place of residence is in Zone A, and they are merely physically present (with no usual place of residence) in the special area of Zone A.

This is on the basis that ‘time spent within a particular zone’ is no longer a consideration for zone tax offset eligibility.

This has been recently publicly confirmed by the ATO in their Zone and overseas forces fact sheet in which they simply state that ‘any discretion exercised by the Commissioner for the zone tax offset will be made with reference to your usual place of residence’.

Should you have any queries in regards to the above article, please do not hesitate to contact our office on
02 4958 1829 or email our Client Support Manager on

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