Private ruling: Assessability of allowances
Published: January 2014
Date scheme commenced: 1 July 2012.

Ruling: Question and answer | Are the allowances you earned while employed overseas exempt from income tax in Australia? | Yes. | for the following period: | Year ending 30 June 2013. | The scheme commenced on: | 1 July 2012.

Relevant facts and circumstances: You are resident of Australia and you plan to return to Australia after the completion of your overseas engagement in 201X. You are completing an engagement overseas. Organisation X is an Australian Government AID initiative. You have provided documentation from the Organisation X program which shows you received the following payments in the 201X/201X financial year: · Various allowances $ X In 201X/201X you have did not had any other form of income. Organisation X has advised you that you are treated like an employee. You have provided a copy of your assignment. You receive your allowances monthly. They are paid in AUD into your Australian Bank Account. You are considered employees of host organisations. As a result, there are no leave arrangements other than leave entitlements provided by host organisations. Allowances received whilst overseas are not taxable overseas on account of an agreement that exempts such payments. The program is considered to be Australian Official Development Assistance (ODA). You will be engaged in foreign employment for more than 91 continuous days. There is no taxation treaty between the Australian Government and the overseas country.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG | Income Tax Assessment Act 1936 Section 23AG(1) | Income Tax Assessment Act 1936 Section 23AG(1AA) | Income Tax Assessment Act 1936 Section 23AG(2)

Reasons for decision: Summary: Subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that foreign earnings are exempt from income tax where all of the following requirements are satisfied: · you are a resident of Australia and a natural person, · you are engaged in foreign service, · the foreign service is for a continuous period of at least 91 days, · you derive foreign earnings from that foreign service, · the foreign service is directly attributable to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936, and · the foreign earnings are not exempt from income tax in the foreign country only because of one of the reasons listed in subsection 23AG(2) of the ITAA 1936. Given a consideration of the whole arrangement, it is accepted that you meet the above criteria and the income referable to your foreign service is exempt from income tax in Australia. | Detailed Reasoning - For your information: If a taxpayer has income in a financial year which is only partially exempt, there is a requirement to apportion the income. Salary and wages which are not exempt foreign earnings should be declared as normal at Salary and wages when lodging. Tax withheld should be declared in full. Any excess Pay As You Go Withholding (PAYGW) credits will be refunded automatically. Foreign earnings exempt under section 23AG of the ITAA 1936 need to be included as exempt foreign salary and wage income in an individuals tax return. These amounts are taken into account in calculating the tax payable on other income derived by a taxpayer. This method of calculation referred to as exemption with progression prevents the exempt income from reducing the Australian tax payable on the other income. It is advisable to include a note with lodgment, explaining the method of calculation and reference any applicable private rulings for the periods.