Private ruling: Foreign employment income - employee of a defence contractor
Published: May 2012
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the income you receive from your deployment to country X under an Australian Defence Force (ADF) contract to provide support services to ADF personnel exempt from tax in Australia under paragraph 23AG(1AA)(d) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: No.

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You are employed by an Australian resident company (Company A) Company A was awarded a contract with the Commonwealth of Australia for the provision of support services to the ADF. You perform these services in a foreign country for Company A. You were deployed by your employer to country X and will be there for a continuous period of not less than 91 days. While deployed, you are under the Tactical Command of the Australian Commander. The Statement of Acknowledgement in respect to deployment of Company A personnel on ADF operations provides that they are not deemed to be employees of the Commonwealth even though they will be required to sign forms stating that they agree to be subject to the Defence Force Discipline Act. You are required to have ADF identification and Geneva Convention Card identification. Company A pays you a salary and operational support allowance for the duration of your deployment.

Relevant legislative provisions: Income Tax Assessment Act 1936 - Section 23AG | Income Tax Assessment Act 1936 - Subsection 23AG(1) | Income Tax Assessment Act 1936 - Subsection 23AG(1AA) | Income Tax Assessment Act 1936 - Paragraph 23AG(1AA)(d)

Reasons for decision: Summary: Subsection 23AG(1) of the ITAA 1936 provides that, where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from this foreign service are exempt from Australian tax. However, subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that those foreign earnings will not be exempt under section 23AG unless the continuous period of foreign service is directly attributable to, amongst other things, the individual's deployment outside Australia as a member of a disciplined force. Foreign deployment as a member of a disciplined force Specifically, subsection 23AG(1AA) of the ITAA 1936 relevantly states: However, those foreign earnings are not exempt from tax under this section unless the continuous period of foreign service is directly attributable to any of the following: (d) the person's deployment outside Australia as a member of a disciplined force by: (i) the Commonwealth, a State or a Territory; or (ii) an authority of the Commonwealth, a State or a Territory; What constitutes a 'deployment outside Australia as a member of a disciplined force by the Commonwealth, a State or a Territory or an authority of the Commonwealth, a State or a Territory' is not set out in section 23AG of the ITAA 1936. However, the Explanatory Memorandum (EM) which accompanied Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009) introducing paragraph 23AG(1AA)(d) of the ITAA 1936 provides guidance on this (see subparagraph 15AB(1)(b)(i) and paragraph 15AB(2)(e) of the Acts Interpretation Act 1901 ). The relevant table (found in paragraph 1.17) and paragraphs appear below: New law Current law Subject to certain existing conditions, foreign employment income derived by an Australian resident individual will only be exempt from income tax if it is derived in the person's capacity as: an aid worker employed in the delivery of Australian official development assistance; an aid or charitable worker employed by an organization in providing overseas aid relief; a specified government employee deployed overseas as a member of a disciplined force; or an employee undertaking an activity of a kind specified in the regulations. Subject to certain conditions, foreign employment income derived by an Australian resident individual is exempt from Australian income tax. This exemption is not limited to foreign employment income derived from specific employment activities. A person's foreign earnings will be eligible for exemption if the foreign service is directly attributable to that person's deployment outside Australia as a member of a disciplined force by an Australian Government or an authority thereof. A disciplined force is intended to refer to a defence force, including a peacekeeping force, and a police force. In a defence force context, the exemption would apply to a person's deployment outside Australia as part of non-warlike operation. In a police force context, the exemption would apply to Australian Federal Police employees deployed on an International deployment group mission who are subject to Commander's orders to achieve operational policing outcomes. The Second Reading Speech to Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009) in the House of Representatives provides additional guidance (see subparagraph 15AB(1)(b)(i) and paragraph 15AB(2)(f) of the Acts Interpretation Act 1901 ). In this speech, the Treasurer relevantly stated: From 1 July 2009, an exemption will apply to income earned as an aid worker, a charitable worker or under certain types of government employment such as a defence or police deployment. It will also apply to income earned as prescribed under regulations. Cumulatively, this reveals that the deployment referred to in paragraph 23AG(1AA)(d) of the ITAA 1936 is one that is confined to government employees. In order for a person's deployment outside Australia as a member of disciplined force to be by the Commonwealth, a State or Territory (or an authority of the Commonwealth, a State or Territory), it must be directly effected by an Australian government or an authority thereof. Only those employed by an Australian government or authority thereof meet this requirement. | Detailed Reasoning - Conclusion: As you are an employee of Company A and not an employee of the Australian government or an authority thereof, you do not satisfy paragraph 23AG(1AA)(d) of the ITAA 1936. As such your income earned during deployment to country X is not exempt from Australian income tax under the provisions of section 23AG of the ITAA 1936.

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