Private ruling: Assessability of foreign employment income
Date of advice: 25 August 2015
Published: August 2015
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Questions and answer | Are your salary and allowances derived while posted to Country Y exempt from tax under 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | Yes.

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You are posted by the ADF to Country Y. You will be in Country Y for more than 91 days. Your circumstances are covered by the agreement between Australia and Country Y for the avoidance of double taxation.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG

Reasons for decision: Summary: 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 are being posted to country Y by the ADF. 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 Country Y only because of one of the reasons listed in subsection 23AG(2) of the ITAA 1936. There is an agreement between Australia and Country Y which exempts your income from tax in Country Y. Therefore, subsection 23AG(2) of the ITAA 1936 will not apply to deny the exemption under subsection 23AG(1) of the ITAA 1936. Accordingly, the salary and allowances you receive during your posting in Country Y is exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936.