Private ruling: Foreign income
Published: July 2013
Ruling period: Year ending 30 June 2012.
Date scheme commenced: 1 July 2011.

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. You believe your employment was directly attributable to the delivery of official development program. Your employer is a Australian resident company who manage programs and delivers projects. Your employer is engaged as the managing contractor. You were engaged as an employee. Your employment commenced in the relevant year. You returned to Australia in the subsequent year. You were based in one overseas country. The purpose of employment is to manage other individuals. Your job specification states that as an employee you are responsible for the strategic and management of all programs/projects and activities overseas, and to ensure that all financial, program/projects and business targets are met. You are responsible for: · Developing, assessing and reviewing, · Ensuring assignments are aligned with third party development strategies, · Providing in-country orientation to individuals, · Providing ongoing support and assistance to individuals, including logistical and living/working in a country advice, · Working with recipient local organisations to ensure the delivery of the program is meeting their expectations and the employees are meeting their assignment objectives, · Development of appropriate numbers of assignments as directed by a third party annual planning, and · Safety and security of employees in the event of a critical incident. Your employer received advice from an accounting firm that your salary would be exempt from taxation in Australia. You have not had any tax withheld on your salary. You do not pay tax overseas. Australia and the overseas country have an agreement in place specifying a tax exemption overseas. You were engaged in foreign employment for more than 91 continuous days. You took unpaid leave, which was accrued whilst engaged in your foreign service. You have returned to Australia to work for small periods of time, not sufficient to break your foreign service. You receive a base salary and other allowances. The principal reason for your employment was to deliver a program. Your position is X% funded directly by a third party to manage the program. Y% of your role was to undertake business management tasks and ad-hoc support to other programs of your employer, which was funded by your employer as a corporate contribution. The immediate and controlling reason for your foreign service was in-country delivery of the third party program. You were not employed for or responsible for the delivery of any other of your employers programs. There is a taxation treaty between the Australian Government and the overseas 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. You are employed by an organisation, who is an Australian resident company. This organisation is contracted by a third party to assist with the training and development of staff to allow Australia to deliver on its commitments. This training and development occurs overseas. Whilst the training has a connection to the delivery of Australian development program, it is not itself a part of the delivery of any particular aid program. The predominant purpose of your foreign employment is to train individuals. As per Taxation Ruling TR 2013/D3 - Example 6 - Non-government organisation employees delivering a training program not related to a specific aid program , the Commissioner does not consider that the training and development of staff is in itself the delivery of Australian program. Therefore foreign service is not directly attributable to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936 As you do not meet the conditions of subsection 23AG(1AA) of the ITAA 1936 income referable to your foreign service is not exempt from income tax in Australia.