Private ruling: foreign employment income
Published: January 2015
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Question and answer | Is the salary and allowances received by you during your deployment to a foreign country to provide Australian Official Developmental Assistance exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | No.


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 Subsection 23AG(2) Income Tax Assessment Act1936 Paragraph 23AG(2)(d) | Income Tax Assessment Act 1997 Section 6-5

Reasons for decision: Summary: Subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that foreign earnings of an Australian resident derived during a continuous period of foreign service of not less than 91 days employment in a foreign country are exempt from income tax in Australia. As you receive a salary from your foreign employment, this salary is considered to be derived from your foreign service. In addition to your salary, you will receive a transfer allowance and overseas allowances. The overseas allowances are designed to cover various costs and hardship of the foreign service. As they are paid to compensate for costs arising from the foreign service and for the hardship attributable to the foreign service, they are considered to be derived from your foreign service. Therefore, your salary and overseas allowances are foreign earnings from foreign service for the purposes of subsection 23AG(1) of the ITAA 1936. Subsection 23AG(1AA) of the ITAA 1936 provides that foreign earnings are not exempt from tax unless the continuous period of foreign service is directly attributable to any of the following: • the delivery of Australia's overseas aid program by the individual's employer; • the activities of the individual's employer in operating a developing country relief fund or a public disaster relief fund; • the activities of the individual's employer being a prescribed institution that is exempt from Australian tax; or • the individual's deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force. In your case, you have been appointed to undertake a deployment to a foreign country on an Australian government project as a Development Program Specialist. As you deployment is directly attributable to the delivery of an Australian overseas aid program by the Australian government, you satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936. However, subsection 23AG(2) of the ITAA 1936 provides that the exemption under subsection 23AG(1) of the ITAA 1936 will not apply in certain circumstances. Paragraph (d) of subsection 23AG(2) of the ITAA 1936 states that if the law of the foreign country does not provide for the imposition of income tax then the exemption under 23AG(1) does not apply the foreign income. You are an Australian resident for income tax purposes. You earned foreign income (salary and allowances) from your employment in a foreign country. The law of a foreign country does not provide for the imposition of an income tax. Therefore, the exemption under paragraph 23AG(2)(d) applies to your foreign income. As a result, your foreign income is not exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936 and is assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 and is included in your income tax returns for the relevant income years.

As an employee of the Australian government, you were deployed to support the implementation of Australian Official Developmental Assistance (ODA). In particular, you were deployed to deliver ODA-eligible programs and monitor activities under the aid program, ensuring momentum was maintained on progressing development priorities and to ensure a high level of coordination with the Government of a foreign country and development partners. | You were deployed to a foreign country and departed a foreign country. | You are travelling on a Diplomatic Passport for your employment. | You did not leave a foreign country during this period. | You received salary and allowances for services rendered during this period. | A foreign country does not tax employment income. | You were engaged in continuous foreign service for more than 91 days. | Your foreign service was directly attributable to delivery of Australian Official Developmental Assistance.