Private ruling: Foreign income- section 23AG of the Income Tax Assessment Act 1936
Date of advice: 25 June 2025
Published: 11 August 2025
Ruling period: Year ended 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY
Date scheme commenced: MM DD YY

Ruling: Q1: Is income you earned from the Australian Commonwealth Government during your period of foreign service in Country A exempt from taxation in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes.

Relevant facts and circumstances: You are an Australian citizen and Australia resident for tax purposes. You are a member of a federal law enforcement agency. You will be employed as a law enforcement officer in Country A with the Country A government on DD MM 20YY. The period of employment is for a period of Y years and will exceed XX days of continuous foreign service in Country A. Your duty statement is directly from the Country A Act 20YY. Your contract is DD MM 20YY - DD MM 20YY with a second three-year option to DD MM 20YY. Your position in Country A is being funded by the Australian government under the Department for the purpose of official development assistance. You have an official letter dated DD MM 20YY from the Department confirming your position as a Law enforcement officer in Country A is being funded as a part of official development assistance. It is acknowledged that whilst you are employed in Country A you will remain a member of the federal law enforcement agency on leave whilst in receipt of official support. As stated in your agreement for service your remuneration after allowable deductions will be subject to income tax in country A. Contract of employment The term of appointment of this Agreement is of a period of Y years from DD MM 20YY with an option exercisable with the consent in writing of both Country A and you, to extend his appointment by way of a new Agreement of Service for a further period not exceeding Y years. Responsibilities Subject to the direction of the Kingdom, the Commissioner shall: • Perform the duties set out in Section XX of the Act and Schedule X of this Agreement with all due skill care and diligence; • Comply with policies, commissions, and directives relevant to government policies and procedure, as issued by County A; • If required to do so enter into an agreed written performance agreement with Country A within XX days of taking up office; • Diligently and competently exercise any statutory powers or functions conferred upon you directly, by delegation or otherwise; • Comply with all laws relevant and applicable to the performance of your duties; and • Observe and promote adherence the Code of Conduct in the force as provided by Section XX of the Act. Schedule A Description of your posting You be working as part of the leading law enforcement agency of Country A. It is growing organisation poised to meet demand-driven complex issues from a constantly changing society. Our remit of response is expanding in scope from national to regional and international. As such the Law enforcement Agency is required to constantly adapt to a dynamic law enforcement environment where you are expected to effectively lead the organisation in all regard. Our vision remains the same as safe and protected communities achieved by earning the trust of the people through our service to the community. Role and Purpose As the highest-ranking law enforcement officer in the country who is responsible for the security and safety of Country A. You have overall command, supervision and control of the Law Enforcement Agency, and leads the government response through the Agency to key priority security policy areas including national security, illicit drugs, cybercrime, transnational crime, crime prevention, road safety and gender violence. Aid- funded Stipend & Allowances Agreement The Agreement is between you, Lead Law enforcement Officer, Country A, and Company Z. Company Z is contracted by the Commonwealth of Australia Department to manage a program of official foreign assistance. Under this program, Company Z has received a tasking note from the Department authorising the provision of support to, yourself (Law enforcement Officer). Table 1: Rates Table Item Ref. Item Description Amount (AUD) a) Monthly Stipend (AUD), adjusted for Country A contribution $XX,XXX.XX b) Superannuation equivalent (XX.X% of Monthly Stipend), adjusted for Tongan contribution $X,XXX.XX c) Overseas Allowance per month $X,XXX.XX d) Location Allowance per month $X,XXX.XX e) Cost of Living Allowance per month (Variable depending on ECA, paid at monthly set rate and adjusted every X months) $X,XXX.XX f) Housing & Utilities Allowance $X,XXX.XX g) One-Off Transfer Allowance $XX,XXX.XX j) Reunion fare allowance ($X,000 per year pro rated and paid each month) $XXX.XX/month Terms of Support: 1.Company Z is providing support by the Department and pursuant to Tasking Note XX. 2.Under the terms of the Tasking Note and this agreement, you are not and will not be an employee of Company Z. 3.Support will be limited to the items specified in clause X of the agreement. 1. Company Z will not enter into any agreements in its own name on behalf of you under the agreement. 2. Support will be provided as required and in accordance with the agreement, and consistent with the value for money principles of the Australian Commonwealth Procurement Rules. 3. As a recipient of the Department funded support, you will need to be aware of and comply with all relevant and applicable laws, regulations, policies and guidelines both in Australia and in the Partner Country. A list, as amended from time to time, of Australian laws and guidelines that may apply to the delivery of developmental aid to foreign countries can be found on the Department's website. 4. You will be responsible for their own taxation in Country A and/or Australia.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 23A

Reasons for decision: Summary: Yes. 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. • Your foreign service is for a continuous period of at least 91 days. • You derive foreign earnings from that foreign service. • The foreign service is directly attributable to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936 (the listed activities include a person's deployment outside of Australia, employed directly as the lead law enforcement officer for Country A, funded by the Commonwealth for the purpose of providing official development assistance (OAD)). From the information provided, during your posting to Country A you satisfied all of the above criteria. Subsection 23AG(2) of the ITAA 1936 prevents the exemption under subsection 23AG(1) of the ITAA 1936 where the income is exempt from income tax in the foreign country only because of one or more of the following reasons: • a double tax agreement or a law of a country that gives effect to such an agreement (paragraphs 23AG(2)(a) and (b). • the foreign country exempts from income tax, or does not provide for the imposition of income tax on, income derived in the capacity of an employee, income from personal services or similar income (paragraphs 23AG(2)(c) and (d)); or • a law or international agreement dealing with diplomatic or consular privileges and immunities, or privileges and immunities of persons connected international organisations (paragraphs 23AG(2)(e), (f) and (g)). You have been employed by Country A, funded by the Australian Government under the Department through their Official Development Assistance (ODA) program. While you are paid directly via Company Z on behalf of the Department, you are not employed by them. You are employed directly by the Country A government effective of DD MM 20YY on a contract running for X years with the possibility of extension. Country A is a jurisdiction in which the provisions of section 23AG(2) of the ITAA 1936 do not apply to prevent the exemption. Accordingly, your income will not be exempt from income tax in Country A only because of one or more of the above reasons. Therefore, subsection 23AG(2) of the ITAA 1936 will not apply to deny an exemption under subsection 23AG(1) of the ITAA 1936. Taxation Determination TD 2012/8 provides that under section 23AG of the ITAA 1936, foreign earnings do not need to be received at the time of engaging in a period of foreign service. The important test is that the foreign earnings need to be attributable to that period of service in a foreign country rather than to a period before or after the period of foreign service. Your total period of foreign service is for a duration longer than XX days and temporary absences from your period of continuous service have remained, and will remain, within legislated limits, that is your total period of absence does not exceed 1/6th of your total period of foreign service. Therefore, your period of foreign service is taken to constitute an unbroken period of foreign service in accordance with subsection 23AG(6A) of the ITAA 1936. Your foreign employment income (including allowances) whilst posted to Country A is exempt from taxation in Australia under section 23AG of the ITAA 1936.