Private ruling: International Income - section 23AG
Date of advice: 21 January 2026
Published: 16 March 2026
Ruling period: Year ended 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY
Date scheme commenced: DD MM YYYY

Ruling: Q1: Are your foreign earnings whilst posted with country A in country A, exempt from tax under section 23AG of the Income Tax Assessment Act 1936 ? | A1: Yes.

Relevant facts and circumstances: You are Australian for Taxation Purposes. On DD MM 20YY, you commenced a full-time overseas assignment working for employer A as a Project Manager. Your assignment is expected to continue until DD MM 20YY, after which you have indicated that you shall return to Australia. Your period of service therefore exceeds 91 days, and you have indicated that you will not remain in country A after completing your service. You have supplied a copy your employment contract your employer which confirms That you are entitled to XX days recreational leave per year of service. You will be taking X weeks of recreational leave during MM 20YY. The employment contract also specifies that you are defined as an employee, and not as a contractor. You have provided a letter dated DD MM 20YY from your employer confirming that your period of foreign service was directly attributable to the delivery of Australian official overseas development assistance. You have also advised that you were not liable for income tax in country A during your period of deployment. Australia and country A are parties to the Agreement between Australia and country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income . Article XX of the Agreement provides that salaries, wages, and similar remuneration derived by a resident of Australia may be taxed in country A where the individual exercises employment in country A for more than 90 days in a year of income. You supplied a copy of the "Subsidiary Arrangement between the Government of Australia and the Government of country A relating to the XXXXX Hospital Redevelopment". Section XX of that arrangement provides that: The Government of country A will facilitate the deployment of Government of Australia-funded personnel required for the purposes of the program by granting exemption from income or other taxes on salaries and allowances. You also provided a letter dated DD MM 20YY from your employer confirming that your foreign service is covered under Section XX of the Subsidiary Arrangement.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 23AG | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-5(2) | Income Tax Assessment Act 1997 section 11-15

Reasons for decision: Summary: Your foreign earnings derived from employment in country A are exempt from income tax under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936). | Detailed Reasoning - Detailed reasoning: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether within or outside Australia, during the income year. Salary and wages constitute ordinary income for the purposes of subsection 6-5(2). Under subsection 6-15(2) of the ITAA 1997, an amount that is exempt income is not included in assessable income. Section 11-15 of the ITAA 1997 lists provisions that deal with amounts that may be exempt from tax. This includes section 23AG of the Income Tax Assessment Act 1936 , which provides an exemption for certain foreign employment income. | Detailed Reasoning - Exempt income under section 23AG of the Income Tax Assessment Act 1936: Subsection 23AG (1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that the foreign earnings of an Australian resident are exempt from Australian income tax where those earnings are derived during a continuous period of foreign service of not less than 91 days in a foreign country. Under subsection 23AG (7) of the ITAA 1936, foreign earnings include income such as salary, wages, bonuses, and allowances. To qualify for the exemption, the foreign earnings must be derived from the foreign service. Although the income does not need to be received during the period of foreign service, it must arise as a result of performing that foreign service. Subsection 23AG(1AA) stipulates that foreign earnings will not be exempt unless the continuous period of foreign service is directly attributable to one of the following: • the delivery of Australian Official Development Assistance (ODA) by the taxpayer's employer. • the activities of the employer in operating a public fund that is a Deductible Gift Recipient under the categories overseas aid fund or developed country disaster relief fund . • the activities of the employer where it is a charitable or religious institution that is exempt from income tax because it is either a prescribed institution located outside Australia or an institution pursuing objectives principally outside Australia. • the taxpayer's deployment outside Australia as a member of a disciplined force, generally understood to include the Australian Defence Force and the Australian Federal Police; or • an activity of a kind specified in the regulations. You have confirmed that your foreign service arose directly from your employer's role in delivering Australian official overseas assistance. On this basis, you meet the relevant conditions described earlier. | Detailed Reasoning - Continuous foreign service: To qualify for the exemption from Australian income tax, your foreign service must be undertaken for a continuous period of at least 91 days. Under subsection 23AG (6) of the Income Tax Assessment Act 1936 (ITAA 1936), certain temporary absences are treated as forming part of a continuous period of foreign service. The Commissioner's interpretation of temporary absences is outlined in Taxation Determination TD 2012/8. | Detailed Reasoning - Absences counted as foreign service: For the purposes of determining whether a continuous period of foreign service exists, certain temporary absence such as short periods spent in Australia-may still be treated as part of the foreign service period. An absence will be counted as foreign service where: • it occurs during a scheduled period of foreign service; and • it is consistent with the terms and conditions governing the taxpayer's foreign service engagement; and • it satisfies one of the categories of qualifying absences outlined below. Qualifying absences include: • Recreation leaves on full pay that is attributable to the period of foreign service • Absences due to the taxpayer's own accident or illness • Absences arising from the accident, illness, or death of another person • Short-term absences directly related to the continuing foreign service engagement, such as work-related travel associated with the foreign posting, provided the duration of such absences is not excessive when compared with the overall scheduled period of foreign service. Where these conditions are met, the absence will be treated as part of the taxpayer's continuous foreign service for the relevant purposes of the income tax law. | Detailed Reasoning - Treating two separate periods as one continuous period (one-sixth rule): Subsection 23AG(6A) of the ITAA 1936 provides the rules for determining when two or more discrete periods of foreign service are to be treated as one continuous period for the purposes of section 23AG. Under subsection 23AG(6A), any separate periods in which a taxpayer has been engaged in foreign service are taken to constitute a single continuous period of foreign service beginning from the commencement of the first such period. This treatment continues until the earliest of the following events: • the end of the last period of foreign service; or • a time, occurring on or after the commencement of the first period, when the taxpayer's total absences exceed one-sixth of the taxpayer's total period of foreign service. In effect, subsection 23AG(6A) permits multiple periods of foreign service to be aggregated for the purpose of determining whether the minimum qualifying period in section 23AG has been met. However, this aggregation is conditional upon the cumulative absences between those periods not exceeding one-sixth of the total foreign service undertaken up to that time. Where the taxpayer's total absences exceed the one-sixth threshold, the continuous period of foreign service is taken to end when that excess first occurs. From that point, any subsequent periods of foreign service cannot be treated as forming part of the earlier aggregated period for the purposes of section 23AG. | Detailed Reasoning - Application to your circumstances: As such you satisfy the 91 days continuous foreign service for the purposes of subsection 23AG (1) of the ITAA 1936. However, subsection 23AG (2) of the ITAA 1936, prevents the exemption under subsection 23AG (1) of the ITAA 1936 where the income is exempt from income tax in the foreign country only because of one or more of the following conditions: • a double tax agreement or a law of a country that gives effect to such an agreement (paragraphs 23AG(2)(a) and (b)). • the foreign country exempts from income tax, or does not provide for the imposition of income tax on, income derived in the capacity of an employee, income from personal services or similar income (paragraphs 23AG(2)(c) and (d)); or • a law or international agreement dealing with diplomatic or consular privileges and immunities, or privileges and immunities of persons connected international organisations (paragraphs 23AG(2)(e), (f) and (g)). In your case, it is evident that your employment income is not exempt from tax in country A for any of the above reasons that are listed in subsection 23AG (2) of the ITAA 1936. In country A, if you are an employee, your income is employment income and is therefore liable to tax. In addition, as your work assignment will be exercised in country A for a period exceeding 90 days, Article 15 of the country A agreement will not provide a tax exemption in country A on your foreign earnings. The Treaty on Development Co-operation between the Government of Australia and the Government of country A (the Treaty) sets out arrangements relating to development co-operation between Australia and country A. Based on the information you have provided, Clause 17 of the Annex to the Treaty (which sets out the procedures applying to Jointly Programmed Aid) allows the co-ordinating authorities-namely the Australian Agency for International Development within the Department of Foreign Affairs and Trade, and the country A Department of Treasury and Planning-to enter into specific subsidiary arrangements for the implementation of activities conducted under the Annex. Under Clause 12(1)(a) of the Annex, income derived by personnel engaged in approved activities is exempt from tax in country A. Accordingly, your remuneration is exempt from tax in country A by virtue of this clause. Clause 1.1 of the Subsidiary Arrangement between the Government of Australia and the Government of country A relating to the XXXXX Hospital Redevelopment provides that the terms of the above-mentioned Treaty apply to the Subsidiary Arrangement. Furthermore, Clause 11.1(a) of the Subsidiary Arrangement states that the Government of country A will facilitate the deployment of Government of Australia-funded personnel by granting exemption from income or other taxes on salaries and allowances. You have also provided written confirmation from your employer that your foreign service is covered under the Subsidiary Arrangement. Having regard to these provisions, the conditions in subsection 23AG (2) of the Income Tax Assessment Act 1936 are not satisfied in your circumstances. Therefore, subsection 23AG (2) will not operate to deny an exemption under subsection 23AG (1), and your foreign employment income is exempt income for Australian tax purposes. | Detailed Reasoning - Conclusion: You have met all the conditions for the exemption in section 23AG of the ITAA 1936, the income you earned while you were working in country A is treated as exempt foreign employment income. This means that money is not included in your assessable income under section 6-5(2) of the ITAA 1997. Any income you earned while you were working in Australia, even if it related to the same role or employer, doesn't qualify for the exemption. Since that work wasn't performed overseas, it is assessable in Australia under section 6-5(2) of the ITAA 1997.

Reasons for decision: These reasons for decision accompany the Notice of private ruling . This is to explain how we reached our decision. This is not part of the private ruling.