Private ruling: Foreign source income
Date of advice: 17 July 2015
Published: July 2015
Ruling period: April 2015 to June 2016
Date scheme commenced: April 2015

Ruling: Question and Answer | Are the salary and allowances you receive while employed overseas exempt from income tax in Australia? | Yes.

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You have recently signed a contract to work overseas. The employment is on an overseas development assistance project in a foreign country for a continuous period greater than 91 days. You are posted to a foreign country, for a resident position to June 2016. Your employer is contracted to a specific Department to undertake this overseas development assistance project in a foreign country. You have supplied a letter from your employer, stating that they employ you under contract with Department. This is an Official Development Assistance (ODA) investment by the Government of Australia in a foreign country. You have provided copies of parts of the Memorandum of Understanding for Development Cooperation between Australia and a foreign country (MoU) that exempts the income from taxation in a foreign country. Your employer does not currently withhold income tax from the salary payments made to you. The Government of a foreign country normally taxes salary and wage income earned in that country. There is no taxation treaty between Australia and a foreign country.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-15 | Income Tax Assessment Act 1997 Section 11-15

Reasons for decision: Summary: Subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that foreign earnings are exempt from income tax where all of the following requirements are satisfied: • you are a resident of Australia and a natural person • you are engaged in foreign service for a continuous period of at least 91 days • you derive foreign earnings from that foreign service • the foreign service is directly attributable to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936 • the foreign earnings are not exempt from income tax in the foreign country only because of one of the reasons listed in subsection 23AG(2) of the ITAA 1936. Given a consideration of the whole arrangement, it is accepted that you meet the above criteria and the income referable to your foreign service is exempt from income tax in Australia.