Private ruling: Foreign income exemption
Date of advice: 17 October 2025
Published: 1 December 2025
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: DD MM 20XX

Ruling: Q1: Is your foreign employment income (including allowances) whilst posted to Country X exempt from taxation in Australia under Section 23AG of the Income Tax Assessment Act 1936 ? | A1: 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 the person's deployment outside of Australia as a member of a disciplined force by the Commonwealth). From the information provided, during your posting to Country X, you will satisfy 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 are a member of a disciplined force fulfilling your posting in Country X, 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 X 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 Income tax: what types of temporary absences from foreign service form part of a continuous period of foreign service under section 23AG of the Income Tax Assessment Act 1936? (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 91 days and temporary absences from your period of continuous service will remain, within legislated limits, (your total period of anticipated 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 X is exempt from taxation in Australia under section 23AG of the ITAA 1936. | Q2: Does leave accumulated as a result of Foreign Service in Country X form part of the period of Foreign Service under Section 23AG of the Income Tax Assessment Act 1936 ? | A2: Yes. 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. The period the taxpayer worked overseas constituted 'foreign service' for the purposes of subsection 23AG(7) of the ITAA 1936. Accordingly, leave accumulated as a result of foreign service in Country X would form part of the period of foreign service under Section 23AG of the Income Tax Assessment Act 1936 .

Relevant facts and circumstances: You are an Australian resident for tax purposes. You are a full-time member of the Australian Defence Force. You are to be posted to Country X on a fulltime assignment from DD MM 20XX to DD MM 20XX. You do not anticipate periods of service in Australia. While posted to Country X you are not a member of a diplomatic mission, covered by the Vienna Convention or any other similar agreement Australia has entered into regarding diplomatic, consular or other protection. In addition to your normal base salary, you will receive the allowances applicable to your overseas posting. During this period, you will accumulate X days of leave. You anticipate taking X days annual leave during the overseas posting. Your income is not subject to a tax treaty with Country X or a law giving effect to a treaty agreement. Country X normally taxes income from employment. Your income is not subject to taxation in Country X because the relevant Authority elects not to tax the salaries of foreign military personnel in your situation.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 23AG. | Income Tax Assessment Act 1997 subsection 6-15(2). | Income Tax Assessment Act 1997 subsection 6-5(2)