Private ruling: Overseas income
Date of advice: 26 September 2016
Published: November 2016
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016

Ruling: Question and answer: | Are you exempt from tax on income earned in overseas employment? | Yes


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

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 Income Tax Assessment Act 1936 (ITAA 1936), which deals with foreign earnings. 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 • 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. In your case, you are a resident of Australia for tax purposes. You were employed in Country A as part of Australian official development assistance, which falls into one of the five categories of foreign service listed in section 23AG of the ITAA 1936. You will engage in Foreign Service for a continuous period greater than 91 days. Subsection 23AG(2) of the ITAA 1936 provides that the exemption does not apply if the amount is exempt from income tax in the foreign country only because of one or more of the following: • a Double Tax Agreement (DTA) or a foreign law giving effect to a DTA; • the foreign country does not tax employment or personal services income at the Federal or national level; or • a law or an international agreement dealing with privileges and immunities of diplomats, consuls or persons connected with international organisations applies. You do not meet any of the above three criteria therefore the exemption under Subsection 23AG(2) of the ITAA 1936 does not apply. Therefore, you have met all the requirements of section 23AG of the ITAA 1936 and your foreign employment income is exempt from tax in Australia. | Detailed Reasoning - Declaring exempt foreign income in your tax return: Although income subject to exemption under section 23AG of the ITAA 1936 is not taxable in Australia, the amount still needs to be declared as 'exempt foreign employment income' at the appropriate label in your tax return. This is because the amount of exempt foreign earnings is taken into account in calculating the tax payable on other income that you derive. | Detailed Reasoning - Note: Private rulings are based on the individual facts detailed in the ruling. If those facts are materially incorrect (for example, Exchange of Notes does not apply) then the ruling cannot be relied upon.

You work for the Australian Government. | You have been selected by your employer to work in Country A for 12 months. | Your pay will be processed by your employer, but your employer will be reimbursed by DFAT for salary and other costs related to the placement. | You will be paid your current salary plus some additional allowances related to living in Country A. | You will maintain Australian bank accounts. | You are travelling on an Official Passport.