Private ruling: Assessability of foreign income
Published: January 2015
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Question and answer | Is the foreign employment income you derived from working overseas exempt income in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | Yes.

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You were employed by the Australian branch of a charitable organisation to carry out work in an overseas country. You carried out the work for more than 91 days. The organisation is a prescribed charitable institution. There is a Memorandum of Understanding (MOU) between the overseas country and the organisation. Under the MOU, income tax exemption is granted to officials working for the organisation. You were an official for the purposes of the MOU. There is no tax treaty between Australia and the overseas country.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG. | Income Tax Assessment Act 1936 Subsection 23AG(1AA). | Income Tax Assessment Act 1936 Subsection 23AG(2). | Income Tax Assessment Act 1997 Section 6-5 | International Agreements Act 1953

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Salary and wages are ordinary income for the purpose of subsection 6-5(2) of the ITAA 1997. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not included in assessable income. Section 11-15 of the ITAA 1997 lists those provisions dealing with income that may be exempt. Included in this list is section 23AG of the Income Tax Assessment Act (ITAA 1936), which deals with foreign earnings. Subsection 23AG(1) of the ITAA 1936 provides that where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that foreign service are exempt from tax in Australia. Subsection 23AG(1AA) of the ITAA 1936 provides that those foreign earnings will not be exempt under subsection 23AG(1) of the ITAA 1936 unless the continuous period of foreign service is directly attributable to any of the following: a) the delivery of Australian official development assistance by the taxpayer's employer (generally provided by AusAID or the Department of Foreign Affairs and Trade); b) the activities of the taxpayer's employer in operating a public fund covered by the deductible gift recipient categories overseas aid fund and developed country disaster relief fund; c) the activities of the taxpayer's employer where they are a charitable institution or religious institution which is income tax exempt because they are a prescribed institution located outside Australia or pursuing objectives principally outside Australia; d) the taxpayer's deployment outside Australia as a member of a disciplined force of Australia (generally considered to be the ADF or Australian Federal Police); or e) an activity of a kind specified in the regulations. You were employed by the Australian branch of a charitable organisation for more than 91 days in an overseas country as an official. The organisation is a prescribed charitable institution. Accordingly, you satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936. However, the exemption does not apply if the income is exempt from tax in the foreign country only because of any of the reasons listed in subsection 23AG(2) of the ITAA 1936. One of the reasons listed is a tax treaty contained in the International Tax Agreements Act 1953 . There is no tax treaty between Australia and the overseas country. Your foreign earnings were exempt from taxation in the overseas country because of the terms of the MOU entered into between the organisation and the overseas country. The exemption provided by the MOU does not fall under any of the other exemption categories under subsection 23AG(2) of the ITAA 1936. As you satisfy the conditions for exemption under section 23AG of the ITAA 1936, the employment income you received during your deployment to the overseas country is exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936.