Private ruling: Foreign employment income
Published: August 2017
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018
Date scheme commenced: 1 July 2014

Ruling: Question and Answer | Are your wages earned during your period of deployment exempt under section 23AG of the Income Tax Assessment Act 1936 ? | Yes.

Relevant facts and circumstances: Your employer is a recognised disciplined force. You are an Australia resident for taxation purposes. You were deployed by your employer a deployment location outside of Australia. The deployment location is The Host Nation. Your deployment ceases at a later date and is therefore more than 91 days. Your deployment is covered by a Memorandum of understanding between Australia and The Host Nation on development co-operation. In the memorandum of understand the “Project Personnel” clause states the following. In order to facilitate the engagement of Project Personnel required to implement the Australian contribution, The Host Nation will in respect of such personnel grant exemption from income or other taxes including on salaries and allowances derived from performing activities programs under this MOU. You are paid by your Australian employer.

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

Reasons for decision: Summary: Subsection 23AG(1) provides that where a resident taxpayer is engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived from the foreign service will be exempt from tax in Australia. The term 'foreign service' means service in a foreign country as the holder of an office or in the capacity of an employee and the term 'foreign earnings' includes income consisting of salary and wages and allowances. Subsection 23AG (1AA) of the ITAA 1936 provides that foreign earnings are not exempt from tax unless the continuous period of Foreign Service is directly attributable to any of 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. You have gone to The Host Nation as a member of the Australian Federal Police. You satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936. Subsection 23AG(2) of the ITAA 1936 provides that no exemption is available under subsection 23AG(1) of the ITAA 1936 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 tax treaty or a law of a country that gives effect to such an agreement (paragraphs 23AG(2)(a) and (b) of the ITAA 1936); The law of a foreign country generally exempts from, or does not provide for the imposition of income tax on income derived in the capacity of an employee, income from personal services or any other similar income (paragraphs 23AG(2)(c) and (d) of the ITAA 1936), or A law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations applies (paragraphs 23AG(2)(e), (f) and (g) of the ITAA 1936). In order for your employment income to be exempt from tax in Australia under section 23AG of the ITAA 1936, the income must not be exempt from tax in The Host Nation only because of one of the reasons listed in subsection 23AG(2) of the ITAA 1936. You are a covered by a memorandum of understanding between Australia and The Host Nation on development co-operation. Accordingly, the salary and allowances you receive during your employment in The Host Nation are exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936.

Does Part IVA or other general anti-avoidance rule apply to this ruling?: The application of Part IVA of the ITAA 1936 has not been considered as this topic is in the SBIT low risk PART IVA list as specified in ORCLA.