Private ruling: 23AG income
Published: May 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2012
Date scheme commenced: 26 June 2012

Ruling: Questions and answers | As an employee engaged in foreign service for an employer operating a developing country relief fund do you satisfy Section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) ? | Yes

Relevant facts and circumstances: You are a resident of Australia for income tax purposes. You were employed as technical personnel by an Australian resident charitable organisation which is endorsed by the Australian Taxation Office as a tax concession charity. The charitable organisation operates a public fund covered by item 9.1.1 of the table in subsection 30-80(1) of the Income Tax Assessment Act 1997 (ITAA 1997). You performed a foreign service, for the charitable organisation You meet the conditions contained in subsection 23AG(2) ITAA 1936.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG | Income Tax Assessment Act 1997 Subsection 30-80(1)

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. New subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, now restricts the exemption to specific employment activities. It 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: (b) the activities of the person's employer in operating a public fund covered by item 9.1.1 or 9.1.2 of the table in subsection 30-80(1) of the Income Tax Assessment Act 1997 ( international affairs deductible gift recipients); | Detailed Reasoning - Continuous foreign service directly attributable to certain activities: The opening words of subsection 23AG(1AA) contain a requirement applicable to all the employment activities in that subsection. That is, they state that the relevant foreign service must be 'directly attributable to' any of the employment activities listed in the subsection. Section 23AG of the ITAA 1936 does not specify what this means. However, the Explanatory Memorandum (EM) which accompanied Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009 introducing subsection 23AG(1AA) 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 paragraphs appear below: 1.35 Subsection 23AG(1AA) will apply where an individual undertakes a continuous period of foreign service of 91 days or more and the foreign service relates to more than one of the activities listed in paragraphs (a) to (e). | Detailed Reasoning - Employer operating a public fund: The following paragraphs in the EM provide guidance on the scope and meaning of paragraph 23AG(1AA)(b) of the ITAA 1936: 1.23 A person's foreign earnings will be eligible for exemption if they are directly attributable to their employer's activities in operating a public fund covered by item 9.1.1 or 9.1.2 of the table in subsection 30-80(1) of the ITAA 1997. [ Schedule 1, item 1, paragraph 23AG(1AA)(b)] 1.24 Item 9.1.1 of subsection 30-80(1) of the ITAA 1997 applies to a public fund declared by the Treasurer to be a developing country relief fund. Item 9.1.2 of subsection 30-80(1) applies to a public fund operated by a public benevolent institution solely to provide relief to people of a developing country who are in distress as a result of a disaster (a public disaster relief fund). Gifts or donations made to these public funds are tax deductible for income tax purposes to the donor. 1.25 A developing country relief fund is a fund established by an organisation solely for the purpose of providing relief to people of a developing country. The organisation must be an approved organisation as declared by the Minister for Foreign Affairs and the country must be a developing country as declared by the Minister for Foreign Affairs. These conditions are contained in paragraphs 30-85(2)(a) and (b) of the ITAA 1997 respectively. 1.26 A public disaster relief fund is a fund established and operated by a public benevolent institution in response to an event recognised as a disaster by the Minister for Foreign Affairs. The recognition requirement is contained in section 30-86 of the ITAA 1997. 1.27 Paragraph 23AG(1AA)(b) ensures that employees of recognised organisations that undertake aid or charitable activities , that do not form part of Australian ODA, are eligible for exemption on their relevant foreign employment income. As your employer is a charitable organisation operating a developing country relief fund covered by item 9.1.1 of the table in subsection 30-80(1) the ITAA 1997, you satisfy paragraph 23AG(1AA)(b) of the ITAA 1936 provided their foreign service is directly related to aid or charitable activities undertaken by your employer in operating the developing country relief fund.