Private ruling: Assessability of foreign income
Published: October 2012
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2010

Ruling: Question and answer | Is the salary you derive from your foreign service in Country X exempt from income tax in Australia? | No.

Relevant facts and circumstances: You are a resident of Australia for tax purposes. You are a member of the Australian Defence Force (ADF). You have been posted to Country X. Your foreign service in Country X is for a continuous period of more than 91 days. You do not pay tax in Country X because of an international agreement to which Australia is a party and that deals with diplomatic privileges and immunities.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG.

Reasons for decision: Summary: 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 this foreign service are exempt from Australian tax. In your case, you are a resident of Australia and you will be engaged in foreign service for a continuous period of more than 91 days. Subsection 23AG(2) of the ITAA 1936 applies, to deny an exemption, if the foreign earnings are exempt from tax in the foreign country only because of one or more of the following reasons: · a double tax agreement with Australia or a law giving effect to a double tax agreement (paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936); · a law of that foreign country which generally exempts from, or does not provide for, the imposition of tax on income derived in the capacity of an employee, income from personal services or any other similar income (paragraphs 23AG(2)(c) and 23AG(2)(d) of the ITAA 1936), or · a law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations (paragraphs 23AG(2)(e), 23AG(2)(f) and 23AG(2)(g) of the ITAA 1936). Australian does not have a tax treaty with Country X therefore paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936 do not apply. The law of Country X provides for the imposition of income tax on employment income and you will be subject to Country X tax laws, therefore paragraphs 23AG(2)(c) and 23AG(2)(d) of the ITAA 1936 do not apply. However, your earnings are subject to laws or agreements relating to privileges and immunities granted to persons connected with international organisations. Therefore, paragraphs 23AG(2)(e), 23AG(2)(f) and 23AG(2)(g) of the ITAA 1936 do apply. Therefore, you have not met the requirements of subsection 23AG(2) of the ITAA 1936 and your income is not exempt under section 23AG of the ITAA 1936. Accordingly, you have not met all the requirements of section 23AG of the ITAA 1936 and as such the income you derive from your foreign service is not exempt from income tax in Australia.

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