Private ruling: Foreign Income
Published: December 2013
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Question and answer | Are the salary and allowances you earned while employed overseas exempt from income tax in Australia? | No.

Relevant facts and circumstances: You are an Australian resident for income tax purposes. Your foreign service is directly attributable to the delivery of Australian official development assistance by your employer. You will be engaged in foreign employment for more than 91 continuous days. There is no agreement between Australia and the overseas country that exempts the income from taxation in the overseas country. There is no taxation treaty between the Australian Government and the overseas country. Your foreign earnings derived from service in the foreign country are exempt from income tax in the foreign country under the Privileges and Immunities Act under the Laws of that country.

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

Reasons for decision: Summary: 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, 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. An amount of foreign earnings derived in a foreign country is not exempt from tax under subsection 23AG(2) of the ITAA 1936 if the amount is exempt from income tax in the foreign country only because one or more of the following: · a tax treaty with Australia or a law giving effect to a treaty agreement · the foreign country does not impose tax on employment · a law of the foreign country that corresponds to the InternationalOrganisations (Privileges and Immunities ) Act 1963 or an international agreement to which Australia is a party that deals with: § diplomatic or consular privileges and immunities, or § privileges and immunities for people connected with international organisations, such as the United Nations, or · a law of the foreign country which gives effect to an agreement to which Australia is a party which deals with diplomatic or consular privileges and immunities or privileges and immunities for people connected with international organisations, such as the United Nations In your case, 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 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. Accordingly, you meet the conditions for the tax exemption under subsection 23AG(1) and subsection 23AG(1AA) of the ITAA 1936 to apply to the foreign earnings you will earn from your assignment. However, even though the above conditions may be met, subsection 23AG(2) of the ITAA 1936 also provides that no tax exemption is available in circumstances where an amount of foreign earnings derived from service in a foreign country is exempt from tax in the foreign country solely because of: · A law of the foreign country that corresponds to the International Organisations (Privileges and Immunities ) Act 1963 or an international agreement to which Australia is a party that deals with diplomatic or consular privileges and immunities, or privileges and immunities for people connected with international organisations. · A law of the foreign country which gives effect to an agreement to which Australia is a party which deals with diplomatic or consular privileges and immunities or privileges and immunities for people connected with international organisations. Therefore, as your foreign earnings that are derived from service in a foreign country are exempt from tax in the foreign country solely because of a law of the foreign country that relates to diplomatic or consular privileges and immunities, or privileges and immunities for people connected with international organisations, you meet the conditions under subsection 23AG(2) of the ITAA 1936. Thus, given a consideration of the whole arrangement, as there is no memorandum of understanding between Australia and the foreign country specifically relating to income tax and you meet the criteria of 23AG(2) of the ITAA 1936 as stated above, the income earned from your foreign service is not exempt from income tax in Australia.