Private ruling: Assessability of foreign employment income
Date of advice: 11 May 2016
Published: June 2016
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018
Date scheme commenced: 1 July 2015

Ruling: Question and Answer | Is your income derived whilst employed overseas exempt from Australian income tax under section 23AG of the Income Tax Assessment Act 1936 ? | Yes.

Relevant facts and circumstances: You are an Australia resident for taxation purposes. You are not an Australian Government employee. You are employed in a foreign country and carry out duties in regard to an overseas aid project. Your employer is the managing contractor for the aid project. The project is an Australian aid project funded by the Australian government. There is a Memorandum of Understanding (MOU) between the governments of Australia and the foreign country on Development Cooperation. The MOU grants exemption from income taxes in the foreign country on salaries and allowances in respect of Australian project personnel who deliver Australian official development assistance to the foreign country. You are exempt from paying taxes on your employment income in the foreign country under the terms of the MOU.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 23AG | Income Tax Assessment Act 1936 subsection 23AG(2)

Reasons for decision: Summary: 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. In your case, you are an Australian resident engaged in continuous, Foreign Service as an employee for more than 91 days and we accept that your foreign service is directly attributable to the delivery of Australian official development assistance by your employer in the foreign country. 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. In your case, your foreign employment income is exempt from tax in the foreign country because of the MOU between Australia and the foreign country which is a reason other than the conditions listed above. Therefore, the income you derive from your employment in the foreign country is exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936 .