Private ruling: Foreign employment income
Date of advice: 18 February 2016
Published: April 2016
Ruling period: Year ended 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Question and answer | Is your foreign employment income exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | Yes

Relevant facts and circumstances: You are an Australian resident for taxation purposes. You were employed in a foreign country. You were engaged in continuous Foreign Service for more than 91 days. Your foreign service was directly attributable to the delivery of Australian official development assistance (ODA) by your employer. You were not covered by the General Agreement on Development Cooperation and therefore subject to the foreign countries tax law. Your income was exempt in the foreign country only because you were treated as a non-resident foreigner. There is no double tax agreement between the Government of Australia and the Government of the foreign country.

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

Reasons for decision: Summary: Section 23AG of the 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 services as an employee for 91 days or more; • you foreign service is directly attributable to the delivery of Australian official development assistance (ODA) by your employer; and • you are not exclude from the exemption by specific conditions listed in the law. 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 effects 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, you are an Australian resident; you were deployed to a foreign country; you were engaged in continuous foreign services as an employee for 91 days or more and your foreign service was directly attributable to the delivery of Australian official development assistance by your employer. Therefore, your employment income will be exempt from tax in Australia as long as you are not caught by the non-exemption conditions as listed in subsection 23AG(2) of the ITAA 1936. In your situation, there is no double tax agreement between the Government of Australia and the Government of the foreign country. Your income was exempt in the foreign country only because were treated as a non-resident foreigner according to the foreign country Income Tax Law. Therefore, subsection 23AG(2) of the ITAA 1936 does not apply. Accordingly, your foreign employment income is exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936.