Private ruling: Foreign Income
Ruling period: Year ended 30 June 2010. | The scheme commenced on: | 1 July 2009.

Ruling: Q1: Is the employment income you derived from working in Country A in the 2009-10 income year exempt income in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-15(2) | Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Section 11-15 | Income Tax Assessment Act 1936 Section 23AG | Income Tax Assessment Act 1936 Subsection 23AG(1) | Income Tax Assessment Act 1936 Subsection 23AG(1AA) | Income Tax Assessment Act 1936 Paragraph 23AG(1AA)(a) | Income Tax Assessment Act 1936 Paragraph 23AG(1AA)(b) | Income Tax Assessment Act 1936 Paragraph 23AG(1AA)(c) | Income Tax Assessment Act 1936 Paragraph 23AG(1AA)(d)

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 ITAA 1936, which deals with overseas employment income. Subsection 23AG(1) of the ITAA 1936 provides that where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that foreign service are exempt from tax in Australia. However, new subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that those foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to the following: · delivery of Australian official development assistance by your employer. · activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund, or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced a disaster (a public disaster relief fund). · activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax because it is located outside Australia or the institution is pursuing objectives outside Australia. · deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force. | Detailed Reasoning - Delivery of Australian official development assistance: The term 'Australian official development assistance' is not defined for the purposes of section 23AG of the ITAA 1936. However, the Explanatory Memorandum (EM) which accompanied Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009 introducing paragraph 23AG(1AA)(a) of the ITAA 1936 provides guidance on the meaning of the phrase. Some relevant paragraphs are below: | Detailed Reasoning - Australian official development assistance: 1.19 Australian official development assistance (ODA) is assistance delivered through the Australian Government's overseas aid program, as administered by the Department of Foreign Affairs and Trade and/or the Australian Agency for International Development (AusAID). Australian ODA aims to reduce poverty and achieve sustainable development in developing countries, in line with Australia's national interest. 1.20 In addition to providing Australian ODA directly, AusAID also competitively contracts aid work to Australian and international entities. Thus, in practice, individuals involved in the delivery of Australian ODA can include both Australian Public Service (APS) employees and non-APS employees. 1.21 For the purposes of subsection 23AG(1AA) the delivery of Australian ODA must be undertaken by the person's employer, which includes AusAID and an entity contracted by AusAID to assist in the delivery of Australian ODA. The examples in the EM reveal that paragraph 23AG(1AA)(a) of the ITAA 1936 is intended to restrict the section 23AG exemption to foreign earnings derived by: APS employees providing assistance that is classified as Australian official development assistance and is administered by AusAID or the Department of Foreign Affairs and Trade (DFAT); or other employees delivering Australian official development assistance on behalf of their employers who in turn have been contracted by the Australian Government to assist in the delivery of Australian official development assistance that is administered by AusAID or DFAT. The ordinary meaning of 'assistance' in the Macquarie Dictionary is 'the act of assisting; help; aid'. Therefore, adopting its ordinary meaning, 'assistance' for the purposes of section 23AG of the ITAA 1936 would encompass the provision of money, goods or services capable of affording help or aid. In your case, you were not an APS employee. Nor was your employer contracted by the Australian Government to assist in the delivery of Australian official development assistance that was administered by AusAID or DFAT. You were employed by Company A who were contracted by the ADF, to provide services for the ADF. Therefore, the employment income you derived from working in Country A did not satisfy the exemption under section 23AG(1AA)(a) of the ITAA 1936. Foreign deployment as a member of a disciplined force 1.31 A person's foreign earnings will be eligible for exemption if the foreign service is directly attributable to that person's deployment outside Australia as a member of a disciplined force by an Australian government, or an authority thereof. A disciplined force is intended to refer to a defence force, including a peacekeeping force, and a police force. 1.32 In a defence force context, the exemption would apply to a person's deployment outside Australia as part of a non-warlike operation. In a police force context, the exemption would apply to Australian Federal Police employees deployed on an International Deployment Group mission who are subject to Commanders Orders to achieve operational policing outcomes. [Schedule 1, item 1, paragraph 23AG(1AA )(d)]. Cumulatively, this reveals that the deployment referred to in paragraph 23AG(1AA)(d) of the ITAA 1936 is one that is confined to government employees. In order for a person's deployment outside Australia as a member of a disciplined force to be by the Commonwealth, a State or Territory (or an authority of the Commonwealth, a State or Territory), it must be directly effected by an Australian government or an authority thereof. Only those employed by an Australian government or authority thereof meet this requirement. In your case, you are not an employee of an Australian government or an authority thereof, and do not satisfy paragraph 23AG(1AA)(d) of the ITAA 1936 or any of the other conditions specified in section 23AG(1AA) of the ITAA 1936. Therefore, the income you derived from working in Country A in the 2009-10 income year will not be exempt income in Australia under section 23AG of the ITAA 1936.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You are an Australian resident for income tax purposes who is employed by an Australian resident services company. | Since some time in the 2008-09 income year, you have been working and based in Country A where your employer had a contract with the Australian Department of Defence (ADD) to supply specific services to the ADD. | You were based at one of the bases of the Australian Defence Force. | Your specific day to day operations were determined by a specific officer of the Army. In your private ruling application, you state that you undertake the same work as other specific ADF officers. | You state in your application that your role is not one of support to the Australian Defence Force but the same as particular ADF officers. You also state that you perform the same duties, the same missions, take the same risks and receive orders from the same source as other specific military based officers. | Country A has a tax system in place that taxes employment income. | Australia does not have a tax treaty with Country A.