Private ruling: Foreign employment income
Date of advice: 19 July 2017
Published: November 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the income you receive from employment in the Country A exempt from income tax in Australia under section 23 AG of the Income Tax Assessment Act 1936? | A1: Yes

Relevant facts and circumstances: You are an Australian resident for taxation purposes. You took an employment position in the Country A. You will be employed for six months, which is a period of more than 91 days. You state you will receive no recreation leave. You are employed by a company as a Specific Trade Advisor. Your position is funded by a Government Agency. In addition to your daily rate, you receive a per diem as per the relevant pay scales. This per diem is for business expenses such as work phone calls and transport to and from work, travel expenses, meals and groceries. You have provided a letter from your employer which confirms that you are working on a Government Australian Aid funded Program. Your foreign earnings are specifically made exempt from income tax in Country A under a section of an act of Country A; this is a specific provision not a general provision.

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), | International Organisations (Privileges and Immunities) Act 1963, | Income Tax Assessment Act 1997 subsection 6-5(2)

Reasons for decision: Summary: As an Australian resident engaged in foreign service which is directly attributable to Australian official development assistance, for a period of more than 91 days, the foreign earnings you earn will be exempt from income tax in Australia under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936). | Detailed Reasoning - Detailed reasoning: Subsection 23AG(1) of the ITAA 1936 provides that, where a resident taxpayer is engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived from that foreign service will be exempt from tax in Australia. However, subsection 23AG(1AA) of the ITAA 1936 provides that those foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the foreign service is directly attributable to one of the specific employment activities listed in the subsection. These activities are: ● Delivery of Australian official development assistance by your employer (except if that employer is an Australian government agency (within the meaning of the Income Tax Assessment Act 1997)); ● Activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund, or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced disaster (a public disaster relief fund). ● Activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax because it is located outside Australia or the institution is pursuing objectives outside Australia. ● Deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force. As you are a Australian resident for taxation purposes, who will be engaged in foreign service for a period of more than 91 days, you therefore meet the criteria outlined in subsection 23AG(1) of the ITAA 1936. Further, you will be employed by a company as a Skills Advisor, carrying out work directly attributable to the delivery of Australian official development assistance. You therefore satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936. The income referable to your foreign service would therefore be exempt from income tax in Australia. Subsection 23AG(2) of the ITAA 1936 provides that no exemption is available under subsection 23AG(1) of the ITAA 1936 in circumstances where an amount of foreign earnings derived from service in a foreign country is exempt from tax in the foreign country solely because of: ● A tax treaty or a law of a country that gives effect to such an agreement (paragraphs 23AG(2)(a) and (b) of the ITAA 1936); ● The law of a foreign country generally exempts from, or does not provide for the imposition of income tax on income derived in the capacity of an employee, income from personal services or any other similar income (paragraphs 23AG(2)(c) and (d) of the ITAA 1936), ● A law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations applies (paragraphs 23AG(2)(e), (f) and (g) of the ITAA 1936). There is currently no double taxation agreement between Australia and the Country A or any law to that effect. The employment earnings in the Country A are not exempt under a general provision from income tax. Your foreign earnings are specifically made exempt from income tax in the Country A under a section of an Act (Country A); this is a specific provision not a general provision. There are no general provisions that would ordinarily exempt your income from tax in the Country A. You were not deployed as a member of an international organisation as defined in the International Organisations (Privileges and Immunities) Act 1963. On your deployment you were neither a member of a diplomatic or consular mission, nor covered by an international agreement that would give rise to any privileges or immunities. Therefore none of the exclusions listing exemptions under subsection 23AG(2) of the ITAA 1936 apply to your foreign earnings. Accordingly, the earnings that you receive from services performed in the Country A are exempt from tax under subsection 23AG(1) of the ITAA 1936 and are not assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997.