Private ruling: Foreign sourced income
Published: May 2012
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 X 2011

Ruling: Questions and answers: | Are the salary and wages derived from your deployment to country Z assessable in Australia? | No. | Are the allowances that you received that were directly attributable to your foreign service in country Z assessable in Australia? | No.


Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG. | Income Tax Assessment Act 1936 Subsection 23AG(7). | Income Tax Assessment Act 1936 Subsection 23AG(1AA). | Income Tax Assessment Act 1936 Subsection 23AG(1). | Income Tax Assessment Act 1936 Subsection 23AG(2). | Income Tax Assessment Act 1936 Subsection 23AG(6).

Reasons for decision: Detailed Reasoning - Foreign sourced income: Subsection 23AG(1) of the Income Tax Assessment Act 1936 (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, 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, amongst other things, the delivery of Australian official development assistance by the person's employer (paragraph 23AG(1AA)(a) of the ITAA 1936). In your case, you are an APS employee and work for AusAID. As a consequence of your employment you were deployed to country Z by the Australian government for the purposes of providing Australian official development aide. Therefore, your foreign service in country Z falls within the category in paragraph 23AG(1AA)(a) of the ITAA 1936. Accordingly, subsection 23AG(1AA) of the ITAA 1936 will not operate to deny the exemption available under subsection 23AG(1) of the ITAA 1936. | Detailed Reasoning - Conditions for non-exemption: Subsection 23AG(2) of the ITAA 1936, provides that an amount of foreign earnings derived in a foreign country is not exempt from tax under this section if the amount is exempt from income tax in the foreign country only because of any of the categories listed therein. One of the categories listed is 'a law in the foreign country giving effect to a double tax agreement (paragraph 23AG(2)(a)) of the ITAA 1936). | Detailed Reasoning - Double tax agreement: Australia has an International Tax Agreement with country Z (the country Z agreement). Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The country Z Agreement is listed in section 5 of the Agreements Act. The country Z agreement operates to avoid the double taxation of income received by residents of Australia and country Z. Article X of the country Z agreement advises that remuneration, other than a pension or annuity paid by Australia or a political subdivision or local authority of Australia to any individual in respect of 'services rendered in discharge of government functions 'services rendered in discharge of government functions shall be taxable only in Australia. Taxation Ruling TR 2005/8 Income tax: the meaning of particular terms in the Government Service Articles of Australia's tax treaties, provides discussion on the meaning of the term 'services rendered in discharge of government functions'. Paragraphs 46 to 76 of TR 2005/8 discusses the meaning of the term 'services rendered in the discharge of governmental functions', and provides that domestic law considers the term to mean those services rendered by an employee or office-holder in the completion or performance of any functions undertaken by government. Therefore, as you are an APS employee and you are providing services undertaken by the Australian Government, any remuneration that you receive as a result of your foreign service will be exempt from income tax in country Z under Article X of the country Z agreement. The specific treaty between the Government of Australia and the Government of country Z' A specific treaty between the Government of Australia and the Government of country Z' exists between the two countries. The treaty states: The Government of country Z shall facilitate the recruitment and employment by the Government of Australia or its contractors, of personnel required for the activities to which this Annex applies, by: granting exemption from income or other taxes on salaries and allowances; Therefore, this treaty also operates to exempt any of your foreign earnings from tax in the country Z. What it means to have your income and allowances exempt from tax in Country Z under both the country Z Agreement and the specific treaty. As your income and allowances are exempt from tax in country Z due to both the specific treaty and the country Z agreement, section 23AG(2)(a) of the ITAA 1936 will not operate to apply Australian income tax to any income or allowances that you receive as a direct result of your foreign service in Country Z. Accordingly, any income or allowances that you receive that are directly related to your foreign service while deployed to country Z are exempt from Australian income tax 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. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You are an Australian resident for income tax purposes. | You are an Australian Public Service (APS) employee and work for the Australian Agency for International Development (AusAID). | You were deployed to country Z as part of an Australian aid program. This program forms the basis of AusAID's direct engagement with the communities, civil societies, Government and private sectors in country Z. | You were deployed to country Z for a short term assignment. | Your role required you to jointly manage the aid program. In addition you were also responsible for identifying and implementing opportunities for alignment with AusAID's flagship programs in country Z in regards to specific issues. | You were engaged in service in country Z for a continuous period in excess of 91 days. | You received salary and other remuneration entitlements that were paid at various times during your deployment | In addition to your salary you received allowances as a result of your deployment. | The allowances that you received are directly attributable to your foreign service. | You worked under the specific treaty between the governments of Australia and country Z'. The specific treaty between the Government of Australia and the Government of country Z' states: