Private ruling: Foreign income
Published: May 2013
Ruling period: Year ending 30 June 2013, | Year ending 30 June 2014, | Year ending 30 June 2015, | Year ending 30 June 2016, | Year ending 30 June 2017.
Date scheme commenced: 1 July 2012.

Ruling: Question and answer | Are the salary and allowances you earned while employed overseas exempt from income tax in Australia? | Yes.

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You are engaged as a contractor and derive eligible foreign earnings. You are engaged on qualifying service in an overseas country for a continuous period that is greater than 91 days and you do not expect to have a break to the continuity of your qualifying service. You are employed on an approved project and have supplied an official project number. There is taxation treaty between the Australian Government and the overseas country. The overseas country normally taxes salary and wage income. There is an agreement between Australia and the overseas country that exempts the income from taxation in the overseas country.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AF | Income Tax Assessment Act 1936 Section 23AF(1) | Income Tax Assessment Act 1936 Section 23AF(17) | Income Tax Assessment Act 1936 Section 23AG(2)

Reasons for decision: Summary: Subsection 23AF(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that foreign earnings are exempt from income tax where all of the following requirements are satisfied: · you are a resident of Australia and a natural person, · you are engaged in qualifying foreign service, · the foreign service is for a continuous period of at least 91 days, · you derive eligible foreign earnings from that foreign service, · the foreign service is directly attributable to an approved project by the Trade Minister or a delegate of the Trade Minister, and is allocated an official project number, · the income is not excluded by 23AG of the ITAA 1936 or any other provision listed in subsection 23AF(17) of the ITAA 1936, and · the foreign earnings are not exempt from income tax in the foreign country only because of one of the reasons listed in subsection 23AG(2) of the ITAA 1936. Given a consideration of the whole arrangement, it is accepted that you meet the above criteria and the income referable to your foreign service is exempt from income tax in Australia. | Detailed Reasoning - For your information: If a taxpayer has income in a financial year which is only partially exempt, there is a requirement to apportion the income. Salary and wages which are not exempt foreign earnings should be declared as normal at Salary and wages when lodging. Tax withheld should be declared in full. Any excess PAYGW credits will be refunded automatically. Foreign earnings exempt under section 23AF of the ITAA 1936 needs to be included as exempt foreign salary and wage income in your Australian tax return. These amounts are taken into account in calculating the tax payable on other income derived by a taxpayer. This method of calculation referred to as exemption with progression prevents the exempt income from reducing the Australian tax payable on the other income. It is advisable to include a note with lodgment, explaining the method of calculation and reference any applicable private rulings for the periods.