Private ruling: Foreign Income
Date of advice: 8 July 2016
Published: August 2016
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Is your foreign employment income (including allowances) exempt from taxation in Australia under Section 23AG of the Income Tax Assessment Act 1936 ? | A1: Yes

Relevant facts and circumstances: You are an Australian resident for tax purposes. You are a member of the Australian Defence Forces. You were posted to Country X on a fulltime assignment from 20XX, for a specific period which may exceed 91 days. While posted, you are not a member of a diplomatic mission, covered by the Vienna Convention or any other similar agreement Australia has entered into regarding diplomatic, consular or other protection. In addition to your normal base salary you will receive allowances. There is no double tax agreement between the Government of Australia and Country X nor is there any agreement between the 2 countries that exempts your employment income from being assessable in that country. Country X normally taxes income derived in the capacity of an employee.

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

Reasons for decision: Detailed Reasoning - Assessable income - general: As a general rule, and under the provisions of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), the assessable income of an Australian resident taxpayer includes all the ordinary income they earn from all sources, in or out of Australia in an income year. Income in the form of salary, wages and allowances are all types of ordinary income. Although a payment may be considered ordinary income and will generally be assessable under the provisions of section 6-5 of the ITAA 1997, there are some instances where ordinary income may be excluded from an individual's assessable income in Australia. This will be the case for example if a specific provision of the tax law makes the income exempt from taxation in Australia. Exemption from taxation under section 23AG of the Income Tax Assessment Act 1936 Section 23AG of the ITAA 1936 provides that foreign earnings are exempt from income tax in Australia 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. • From 1 July 2009 onwards, the foreign service is directly attributable to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936 (the listed activities include the person's deployment outside of Australia as a member of a disciplined force by the Commonwealth). • Subsection 23AG(2) of the ITAA 1936, must not apply to the taxpayer. From the information that you have provided, during your posting you will satisfied all of the above criteria. With reference to subsection 23AG(2) of the ITAA 1936, we have received advice from the ADF Tax Management Office that the income that you derive from your foreign service is taxable in Country X. Therefore 23AG(2) of the ITAA 1936 will not apply to deny an exemption under 23AG(1) of the ITAA 1936. | Detailed Reasoning - Conclusion: Accordingly, as you satisfy all the exemption conditions provided for under section 23AG of the ITAA 1936, the income that you derive from your overseas deployment is not assessable in Australia under section 6-5(2) of the ITAA 1997.