Private ruling: Foreign salary and work related expenses
Published: March 2013
Ruling period: Year ended 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Questions and answers: | Is the foreign salary you earned taxable in Australia? | No. | Are you entitled to claim travel and other expenses related to your overseas employment? | No.

Relevant facts and circumstances: You are an Australian resident for taxation purposes. You worked for a government authority in country X for 12 months. You paid tax on your salary in country X. You resigned from your employment in Australia prior to commencing work overseas. You received a termination payment from your Australian employer after you resigned. You returned to Australia after completing your employment overseas. You incurred airline travel expenses and other expenses prior to commencing, and after finishing, your employment in country X. Australia has a double taxation agreement with country X.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | International Tax Agreements Act 1953

Reasons for decision: Detailed Reasoning - Foreign salary income: In determining whether foreign sourced income is taxable in Australia, it is relevant to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act). The Agreements Act contains the double tax agreement between Australia and country X (the agreement). The Agreement operates to avoid the double taxation of income derived by Australian and country X residents. The Agreement states that salaries and wages earned in relation to performing governmental functions in country X will be taxable only in country X. In your situation, you worked in for a government authority in country X. Therefore, the salary you earned is taxable only in country X. The salary you earned and the tax you paid in country X in the years ending 30 June 20YY and 30 June 20ZZ does not have to be included in your Australian income tax returns for those years | Detailed Reasoning - Work related expenses: Income tax legislation allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing income that is assessable (taxable) in Australia, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. Travel expenses are deductible if they are incurred in the course of your work or business. In considering the deductibility of travel expenses a distinction is made between travel to work and travel on work. It is only if the duties of the job require a taxpayer to travel in the course of undertaking their work duties that the taxpayer's expenses can be deducted. A deduction is generally not allowable for the cost of travel by an employee between home and their normal workplace as it is considered to be a private expense. The cost of this travel is incurred to put you in a position to perform your duties of employment, rather than in the performance of those duties. In your situation, you travelled to country X to work for 12 months then returned to Australia. The travel between Australia and country X is considered simply travelling to and from work and a private expense. Any other expenses you incurred are also private in nature. Furthermore, work related expenses can only be deducted where they are incurred in producing income that is taxable in Australia. However, the salary you earned in country X is not taxable in Australia. Therefore, you are not entitled to a deduction for these expenses.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.