Private ruling: Foreign source income
Published: February 2015
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX

Ruling: Q1: Will your salary and allowances you earn while working overseas exempt from income tax in Australia? | A1: Yes

Relevant facts and circumstances: You are a resident of Australia for tax purposes. You are a Government employee. You were sent overseas for work. You will be engaged in foreign employment for more than 91 continuous days. Your foreign service is directly attributable to the delivery of Australian official development assistance (ODA). Your employment in country X is covered by an Exchange of Notes as advised in writing by email to you from your employer. Paragraph 29 of the UN SOFA states the following: Members of the United Nations peace-keeping operation shall be exempt from taxation on the pay and emoluments received from the United Nations or from a participating State and any income received from outside (host country/territory). Country X normally taxes salary and wages. There is no taxation treaty between Australia and country X.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG. | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Subsection 6-15(2) | Income Tax Assessment Act 1997 Section 11-15

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Salary and wages are ordinary income for the purpose of subsection 6-5(2) of the ITAA 1997. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not included in assessable income. Section 11-15 of the ITAA 1997 lists those provisions dealing with income that may be exempt. Included in this list is section 23AG of the Income Tax Assessment Act (ITAA 1936), which deals with foreign earnings. Subsection 23AG(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 foreign service • the 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 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. In your case, you are a resident of Australia for tax purposes. You will engage in foreign service for a continuous period greater than 91 days. The income you earn while working in country X is exempt from tax in country X because the Exchange of Notes applies. The exemption provided does not fall under any of the other exemption categories under subsection 23AG(2) of the ITAA 1936. Therefore, you have met all the requirements of section 23AG of the ITAA 1936 and your foreign employment income is exempt from tax in Australia. | Detailed Reasoning - Declaring exempt foreign income in your tax return: Although income subject to exemption under section 23AG of the ITAA 1936 is not taxable in Australia, the amount still needs to be declared as 'exempt foreign employment income' at the appropriate label in your tax return. This is because the amount of exempt foreign earnings it taken into account in calculating the tax payable on other income that you derive. | Detailed Reasoning - Note: Private rulings are based on the individual facts detailed in the ruling. If those facts are materially incorrect (for example, Exchange of Notes does not apply) then the ruling cannot be relied upon. A ruling is based on the facts stated in the description of the scheme that is set out in the ruling. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it.