Private ruling: Exempt income and the application of 23AG of the ITAA 1936
Date of advice: 8 December 2015
Published: February 2016
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: The scheme has commenced

Ruling: Question and answer: | Is your foreign employment income exempt from taxation in Australia under section 23AG of the Income Tax Assessment Act 1936 ? | Yes.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You are a full time member of a Commonwealth of Australia disciplined force. You were posted to County T on a fulltime assignment for a period greater than 91 days. You returned to Australia for a short holiday from annual leave that was accrued during your posting. While posted to Country T you were not a member of the Australian Embassy and did not have diplomatic status. During your posting to Country T, you conducted no other official duties. In addition to your normal base salary you will received a hardship allowance. There is no double tax agreement between the Government of Australia and the Government of Country T nor is there any agreement between the 2 countries that exempts your employment income from being assessable in Country T. Country T normally taxes income derived in the capacity of an employee.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG. | Income Tax Assessment Act 1997 Subsection 6-15(2). | Income Tax Assessment Act 1997 Subsection 6-5(2)

Reasons for decision: Detailed Reasoning - Assessable income - general: As a general rule, and under the provisions of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), the assessable income of an Australian resident taxpayer includes all the ordinary income they earn from all sources, in or out of Australia in an income year. Income in the form of salary, wages and allowances are all types of ordinary income. Although a payment may be considered ordinary income and will generally be assessable under the provisions of section 6-5 of the ITAA 1997, there are some instances where ordinary income may be excluded from an individual's assessable income in Australia. This will be the case for example if a specific provision of the tax law makes the income exempt from taxation in Australia. Exemption from taxation under section 23AG of the Income Tax Assessment Act 1936 Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings are exempt from income tax in Australia where all of the following requirements are satisfied: • You are a resident of Australia and a natural person. • You are engaged in foreign service. • The foreign service is for a continuous period of at least 91 days. • You derive foreign earnings from that foreign service. • From 1 July 2009 onwards, the foreign service is directly attributable to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936 (the listed activities include the person's deployment outside of Australia as a member of a disciplined force by the Commonwealth). • Subsection 23AG(2) of the ITAA 1936, must not apply to the taxpayer. From the information that you have provided, during your posting to Country T you satisfied all of the above criteria. With reference to subsection 23AG(2) of the ITAA 1936, you have provided confirmation that the income that you derived from your foreign service was assessable in Country T. Therefore 23AG(2) of the ITAA 1936 will not apply to deny an exemption under 23AG(1) of the ITAA 1936. | Detailed Reasoning - Conclusion: Accordingly, as you satisfy all the exemption conditions provided for under section 23AG of the ITAA 1936, the income that you derived from your overseas deployment in Country T is not assessable in Australia under section 6-5(2) of the ITAA 1997.