Private ruling: Foreign employment income exemption
Date of advice: 22 June 2022
Published: September 2022
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is your foreign employment income exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: No.

Relevant facts and circumstances: You are an Australian citizen and an Australian resident for taxation purposes. You are a member of the disciplined force. You have been posted to foreign Country A for more than 91 days. Your leave is restricted to that accrued during the posting and you will be taken in foreign Country A except very short trips to Australia to visit your ageing parents if travel restrictions and service commitments allow. During your posting, in addition to your normal base salary, you receive various allowances. You have provided documents to support that your posting falls within the scope of Australian Cooperation to foreign Country A.

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

Reasons for decision: Summary: Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings are exempt from income tax in Australia if all of the following requirements are satisfied: • You are a resident of Australia and a natural person; and • You are engaged in Foreign Service; and • The Foreign Service is for a continuous period of not less than 91 days; and • You derive foreign earnings from that Foreign Service. In your case, you satisfy all of the requirements under subsection 23AG(1) of the ITAA 1936. However, regardless of whether an individual satisfies the requirements listed above, the exemption provided by subsection 23AG(1) of the ITAA 1936 is not available unless: In your case, you are a member of the disciplined force, you are posted to foreign Country A, you satisfy the requirement under subsection 23AG(1AA) of the ITAA 1936. In reference to subsection 23AG(2) of the ITAA 1936, there is a double tax agreement between the Government of Australia and the Government of foreign Country A. The employment income you receive in relation to your posting is exempt in that country under the double tax agreement. Consequently, one of the reasons listed in subsection 23AG(2) of the ITAA 1936 is satisfied. You have sent supporting documents; However, the Commissioner is not satisfied that your income is exempt in foreign Country A under any of these documents. Your income is exempt in Country A only because of one or more of the conditions listed in subsection 23AG(2) of the ITAA 1936 (because of the double tax agreement), and is not exempt for a reason other than, or in addition to, those conditions. Accordingly, your foreign employment income is not exempt from income tax in Australia under section 23AG of the ITAA 1936.

From 1 July 2009 onwards, the foreign service is 'directly attributable' to an activity listed in subsection 23AG(1AA) of the ITAA 1936 (the listed activities include deployment outside Australia as a member of a disciplined force); and | A double tax agreement or a law of the foreign country giving effort to a double tax agreement; | The foreign country does not impose tax on employment; | A law of the foreign country that corresponds to the International Organisations (Privileges and Immunities) Act 1963 or to the regulations under that Act; | An International agreement to which Australia is a party that deals with diplomatic or consular privileges and immunities, orprivileges and immunities for people connected with international organisations. | A law of the foreign country which gives effect to an agreement to which Australia is a party and which deals with diplomatic or consular privileges and immunities, orprivileges and immunities for people connected with international organisations.