Private ruling: Application of 23AG of the ITAA 1936
Published: May 2015
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2013

Ruling: Questions and answers: | 1. Is your foreign employment income exempt from taxation in Australia for the pre - 30 June 2014? | Yes. | 2. Is your foreign employment income exempt from taxation in Australia after 1 July 2014? | No.

Relevant facts and circumstances: You are an Australia resident for income tax purposes. You are an Australian Public Service (APS) employee. You were posted to country X by your employee. Your conditions of employment prior to 30 June 2014 satisfy the requirements provided under section 23AG of the ITAA 1936 for exempt income. Your conditions of employment post to 1 July 2014 do not satisfy the requirements provided under section 23AG of the ITAA 1936 for exempt income.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1936 Section 23AG | Income Tax Assessment Act 1936 Subsection 23AG(1) | Income Tax Assessment Act 1936 Subsection 23AG(2) | Income Tax Assessment Act 1936 Subsection 23AG(3) Further issues for you to consider | N/A | Anti-avoidance rules | The application of Part IVA of the ITAA 1936 has not been considered as this topic is in the MEI low risk PART IVA list as specified in ORCLA.

Reasons for decision: Detailed Reasoning - Exemption conditions: Section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) provides that where you are working overseas and earning foreign employment income, the income is exempt from income tax in Australia if all of the following applies: • you are an Australian resident; • you are engaged in continuous foreign service as an employee for 91 days or more; • your foreign service is directly attributable to the delivery of Australian official development assistance by your employer; and • you are not excluded from the exemption by specific conditions listed in the law. | Detailed Reasoning - Non-exemption conditions: Subsection 23AG(2) of the ITAA 1936 provides that no exemption is available in circumstances where an amount of foreign earnings derived in a foreign country is exempt from tax in the foreign country solely because of: • a double tax agreement or a law of a country that gives effect to such an agreement (paragraphs 23AG(2)(a) and (b)); • a law of that foreign country which 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)); and • a law or international agreement dealing with diplomatic or consular privileges and immunities, or privileges and immunities of persons connected with international organisations (paragraphs 23AG(2)(e), (f) and (g)). If your foreign employment income is exempt for a reason other than, or in addition to, the conditions listed above, then it will still be exempt from taxation in Australia. For example, your foreign employment income may not be taxed in the foreign country you are working in because there is a MOU or similar agreement between Australia and the foreign country which provides for Australians to assist that country without the foreign country taxing the employment income. | Detailed Reasoning - Service pre 30 June 2014: During the period pre 30 June 2014, you worked as an employee for the APS posted to country X. Based on the information you have provided, your foreign employment income will be exempt from taxation in Australia because: • you are an Australian resident; • you were engaged in continuous foreign service in country X as an employee for 91 days or more; • your foreign service was directly attributable to the delivery of Australian official development assistance by your employer; • your foreign earnings were exempt from tax in country X for a reason other than those listed under 23AG(2) of the ITAA 1936 (MOU between Australia and the country X). Accordingly, the income you derived for the pre-30 June 2014 is exempt from taxation in Australia under Section 23AG of the ITAA 1936. | Detailed Reasoning - Service post 1 July 2014: From 1 July 2014 you continued to be an employed by the APS. With effect from 1 July 2014, the APS advised country X that the provisions of the MOU between Australia and the country X would no longer apply to staff who undertook specific overseas postings in country X. As a result of the changes that came into effect 1 July 2014, the income of such staff is only exempt in country X because of a law or international agreement dealing with diplomatic or consular privileges and immunities and not due to the application of the Australian/country X MOU. In your situation, your overseas posting has continued beyond 1 July 2014. The changes that were implemented by the APS as at 1 July 2014 will apply to your service post 1 July 2014. The result of these changes are that provisions that previously applied to exempt your income from being assessable in country X under the Australian and country X MOU are no longer applicable. Therefore, as the income post 1 July 2014 is no longer exempt from taxation in country X for a reason other than those listed under subsection 23AG(2) of the ITAA 1936, the income that you derive post 1 July 2014 will no longer be exempt from taxation in Australia under 23AG of the ITAA 1936. Accordingly, the income that you derive from your overseas employment post 1 July 2014, will be assessable in Australia under section 6-5 of the ITAA 1997.

Other relevant facts: Country X normally taxes salary and wage income. | There is no double tax agreement between Australia and country X. | The Memorandum of Understanding (MOU) between Australia and country X on Development Co-operation provides for Australians to assist that country without country X taxing the employment income. | The Australian Government has advised the Government of country X that as from 1 July 2014, the provisions of the MOU between Australia and country X will no longer apply to staff that perform specific overseas roles for the Australian Government.