Private ruling: Section 23AG of the Income Tax Assessment Act 1936
Date of advice: 21 June 2018
Published: August 2018
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the payment you received from working overseas exempt from income tax in Australia under section 23AG of the Income Assessment Act 1936 (ITAA 1936)? | A1: Yes

Relevant facts and circumstances: You were engaged by the United Nations Development Programme (UNDP) to work in an overseas country for a period of 12 months. The project work was for a specific programme and you were engaged as an individual consultant. The programme helping low-income households gain access to financial services and financial education. It is jointly administered by the UN Capital Development Fund (UNCDF) and the UNDP and received funding from the Department of Foreign Affairs and Trade (DFAT) of Australia, and two other foreign Government agencies. The programme operates from the UNDP office and has offices in multiple countries. Australia has provided the majority of funding for the programme through DFAT. The UNDP shows that the Official Development Assistance from DFAT has been received. Your engagement was in the 20XX financial year.

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)

Reasons for decision: Detailed Reasoning - Section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936): Subsection 23AG(1) of the Income Tax Assessment Act 1936 (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. However, new subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that those foreign earnings will not be exempt under section 23AG unless the continuous period of foreign service is directly attributable to, amongst other things, the delivery of Australian official development assistance by the person's employer. | Detailed Reasoning - Delivery of Australian official development assistance by the person's employer: The term 'Australian official development assistance' is not defined for the purposes of section 23AG. However, the Explanatory Memorandum (EM) which accompanied Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009 ) introducing paragraph 23AG(1AA)(a) provides guidance on the meaning of the phrase. The relevant paragraphs are below: | Detailed Reasoning - Australian official development assistance: 1.19 Australian official development assistance (ODA) is assistance delivered through the Australian Government's overseas aid program, as administered by the Department of Foreign Affairs and Trade and/or the Australian Agency for International Development (AusAID). Australian ODA aims to reduce poverty and achieve sustainable development in developing countries, in line with Australia's national interest. 1.20 In addition to providing Australian ODA directly, AusAID also competitively contracts aid work to Australian and international entities. Thus, in practice, individuals involved in the delivery of Australian ODA can include both Australian Public Service (APS) employees and non-APS employees. 1.21 For the purposes of subsection 23AG(1AA) the delivery of Australian ODA must be undertaken by the person's employer, which includes AusAID and an entity contracted by AusAID to assist in the delivery of Australian ODA. Example 1.1 Colin is an APS employee employed by AusAID. He is posted to the Cook Islands, for 120 continuous days, as a project advisor on an Australian ODA project aimed at improving the quality of early childhood education. Colin's foreign service is directly attributable to the delivery of Australian ODA by his employer and his foreign earnings are therefore eligible for exemption pursuant to section 23AG, subject to the conditions contained in subsection 23AG(2). Example 1.2 Robert is an APS employee employed by the Commonwealth Department of Climate Change. He is posted to Tokelau for 150 continuous days, to work on a project aimed at minimising the impacts of rising sea levels in Tokelau. Robert is not an AusAID employee but the project is classified as Australian ODA by AusAID. Robert's foreign service is directly attributable to the delivery of Australian ODA by his employer and his foreign earnings are therefore eligible for exemption pursuant to section 23AG, subject to the conditions contained in subsection 23AG(2). Example 1.3 Eli is a motor mechanic employed by Emu Engineering Pty Ltd, a private company contracted by AusAID to provide vocational training in Vanuatu. He is posted to Vanuatu for 180 continuous days. Eli's foreign service is directly attributable to the delivery of Australian ODA by his employer and his foreign earnings are therefore eligible for exemption pursuant to section 23AG, subject to the conditions contained in subsection 23AG(2). 1.22 Foreign service directly attributable to the delivery of Australian ODA does not include diplomatic or consular duties carried out by Australian residents. The examples in the EM reveal that paragraph 23AG(1AA)(a) of the ITAA 1936 is intended to restrict the section 23AG exemption to foreign earnings derived by: Australian Public Service (APS) employees providing assistance that is classified as Australian official development assistance and is administered by AusAID or the Department of Foreign Affairs and Trade (DFAT); or Other employees delivering Australian official development assistance on behalf of their employers who in turn have been contracted by the Australian Government to assist in the delivery of Australian official development assistance that is administered by AusAID or DFAT. The ordinary meaning of 'assistance' in the Macquarie Dictionary is 'the act of assisting; help; aid'. Therefore, adopting its ordinary meaning, 'assistance' for the purposes of section 23AG of the ITAA 1936 would encompass the provision of money, goods or services capable of affording help or aid. In your case, you have been contracted to undertake a deployment overseas on behalf of the Programme (as funded by the Department of Foreign Affairs and Trade) to assist with helping low income households gain access to financial services and financial education. As your deployment is directly attributable to the delivery of an Australian overseas aid program by the Department of Foreign Affairs and Trade, through its funding of the UNDP for the purposes of the programme, you satisfy one of the conditions for exemption ( that is, the delivery of Australia’s overseas aid program) under subsection 23AG(1AA) of the ITAA 1936.