Private ruling: Foreign employment income
Published: March 2015
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Question and Answer | Are the salary and allowances you earn while posted to Country A exempt from income tax in Australia? | No?

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are a resident of Australia for tax purposes. You are employed by an Australian government agency (B) and have been selected for a long term posting to Country A in a particular position. You moved to Country A with your partner and child in the relevant income year to begin your posting. B is responsible for delivering Australian official development assistance (ODA). Australian ODA is assistance delivered through the Australian Government's overseas aid program that is administered by B. Employees of B, are Australian public servants. They are directly involved in the delivery of ODA, or in the management and corporate services in connection to the delivery of ODA in Country A. Employees of B are assigned to Country A for a period of at least 91 days, and will remain residents of Australia for income tax purposes for the duration of their assignment. The remuneration for employees of B takes the form of an annual salary entitlement and the payment of various allowances. There is a comprehensive tax treaty that deals primarily with taxation between Australia and Country A (the 'double tax agreement'). Under the 'Government service' article of the double tax agreement, Australian government employees are exempt from tax in Country A. Australia has entered into a Co-operative Development Agreement or Treaty (CDA) with Country A, being the 'Development Agreement'. The Development Agreement provides for Australian personnel to be exempt from taxation by the Country A Government on their salary and allowances. B has confirmed by certain documentation to the government of Country A from 1 July 2014, staff in positions such as your position, who are covered by a particular convention, are not covered by the Country A Development Agreement and that those employees' salaries and allowances are not exempt from tax in Country A by virtue of the Development Agreement. You have a special Australian passport due to your particular employment position.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 23AG(1) | Income Tax Assessment Act 1936 Subsection 2 3AG(7) | Income Tax Assessment Act 1936 Subsection 23AG(1AA) | Income Tax Assessment Act 1936 Subsection 23AG(6) | Income Tax Assessment Act 1936 Subsection 23AG(2) | Income Tax Assessment Act 1936 Paragraph 23AG(2)(b) | International Agreements Act 1953

Reasons for decision: Summary: Subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that foreign earnings of an Australian resident derived during a continuous period of foreign service of not less than 91 days employment in a foreign country are exempt from income tax in Australia. Foreign earnings includes income consisting of salary, wages, bonuses or allowances (subsection 23AG(7) of the ITAA 1936). Section 23AG of the ITAA 1936 has been amended so that foreign employment income derived by Australian residents will only be exempt in certain circumstances. These amendments are effective from 29 June 2009. 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: • the delivery of Australia's overseas aid program by the individual's employer; • the activities of the individual's employer in operating a developing country relief fund or a public disaster relief fund; • the activities of the individual's employer being a prescribed institution that is exempt from Australian tax; or • the individual's deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force. In your case, you have been appointed to undertake a deployment to Country A. You are an employee of B. B is responsible for delivering Australian official development assistance (ODA). Australian ODA is assistance delivered through the Australian Government's overseas aid program that is administered by B. Employees of B, are Australian public servants. They are directly involved in the delivery of ODA, or in the management and corporate services in connection to the delivery of ODA in Country A. Accordingly, being an employee of B, you satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936. | Detailed Reasoning - Non-exemption conditions: In accordance with subsection 23AG(2) of the ITAA 1936, the exemption under subsection 23AG(1) of the ITAA 1936 will not apply if the income is exempt from income tax in the foreign country only because of one or more of the following conditions: • a tax treaty with Australia or a law giving effect to a treaty agreement • the foreign country exempts from income tax, or does not provide for the imposition of income tax on, income derived in the capacity of an employee, income from personal services or similar income, or • a law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations applies. Subsection 23AG(2) of the ITAA 936 applies where foreign earnings are exempt from tax in a foreign country for one or more of the reasons listed in that subsection and there is no additional reason for exempting that income: Taxation Determination TD 2005/14. It does not exclude from exemption an amount of foreign earnings that is exempt from tax in the foreign country for a reason other than those listed above. It is accepted that the salary and allowances of employees of B on foreign service in Country A are exempt from tax under the terms of an international agreement, being the particular convention, and that this exemption falls within the items listed in paragraph 23AG(2) of the ITAA 1936. Australia has entered into a Development Agreement with Country A under which 'Australian personnel' are exempt from tax on their salary and allowances by the government of Country A. If employees of B fall within the scope of that exemption, their salary and allowances would be exempt for a reason other than those listed in subsection 23AG(2) of the ITAA 1936 and that provision would not apply to exclude the exemption under subsection 23AG(1) of the ITAA 1936. B has confirmed by certain documentation to the government of Country A from 1 July 2014, staff in positions such as your position, who are covered by a particular convention, are not covered by the Country A Development Agreement and that those employees' salaries and allowances are not exempt from tax in Country A by virtue of the Development Agreement. There is no evidence that your salary and allowances are exempt from tax in Country A for a reason other than those listed in subsection 23AG(2) of the ITAA 1936. In the absence of any other basis for exemption from tax in Country A, it is concluded that the exemption under subsection 23AG(1) of the ITAA 1936 does not apply in your circumstances to your foreign service in Country A.