Private ruling: Assessability of salary derived overseas
Published: June 2012
Ruling period: Year ended 30 June 2011 | Year ending 30 June 2012
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the salary you receive from employment overseas exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes.

Relevant facts and circumstances: You are an Australian resident for taxation purposes. You are a member of the Australian Defence Force. You were deployed as part of a peace keeping mission with the United Nations. The deployment is for more than 91 continuous days. Australia does not have a double tax agreement with the overseas country. There is no Memorandum of understanding between Australia and the overseas country. You are paid by the Australian Defence Force.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG | Income Tax Assessment Act 1936 Subsection 23AG(1) | Income Tax Assessment Act 1936 Subsection 23AG(1AA) | Income Tax Assessment Act 1936 Subsection 23AG(2) Income Tax Assessment act 1936 Paragraph 23AG(2)(b) | Income Tax Assessment Act 1936 Subsection 23AG(6) Income Tax Assessment act 1936 Subsection 23AG(7)

Reasons for decision: Summary: Subsection 23AG(1) of the ITAA 1936 provides that the foreign earnings of an Australian resident derived during a continuous period of foreign service of not less than 91 days employment in a foreign country are exempt from tax in Australia. Foreign earnings include income consisting of salary, wages, bonuses and allowances (subsection23AG(7) of the ITAA 1936). To qualify for the exemption the foreign earnings must be derived from the Foreign Service. That does not mean that the foreign earnings need to be derived at the time of engaging in Foreign Service. The important test is that the foreign earnings, when derived, need to be derived as a result of the undertaking of that Foreign Service. Subsection 23AG(1AA) of the ITAA 1936 provides that foreign earnings are not exempt from tax unless the continuous period of Foreign Service is directly attributable to any of the following: · the delivery of Australia's overseas aid program by the individual's employer; · the activities of the individual's employer in operating a developing country relief fund or a public disaster relief fund; · the activities of the individual's employer being a prescribed institution that is exempt from Australian tax; or The individual's deployment outside Australia by an Australian government or an authority thereof) as a member of a disciplined force. In your case you have been deployed overseas as part of the Australian defence force on a peace keeping mission with the United Nations. As your deployment is by a disciplined force you satisfy one of the exemptions under subsection 23AG(1AA) of the ITAA 1936. 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. The exemption of income provided for in subsection 23AG(1) of the ITAA 1936 is subject to subsection 23AG(2) of the ITAA 1936 so that the exemption from tax in Australia in subsection 23AG(1) of the ITAA 1936 does not apply if the income is exempt from taxation in the foreign country only because of any of the reasons set out in subsection 23AG(2) of the ITAA 1936. There is no double tax agreement or Memorandum of understanding with the overseas country. Therefore 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. Your income derived overseas is not assessable income in Australia.

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