Private ruling: International income - 23AG
Date of advice: 18 August 2025
Published: 27 October 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: XX XXXX 20XX

Ruling: Q1: For period A, is your foreign employment income (including allowances) whilst you were in Australia exempt from taxation in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: No. | Q2: From XX XXXX 20XX to XX XXXX 20XX during period B, is your foreign employment income you received for X days' work whilst you were in Australia exempt from taxation in Australia under section 23AG of the ITAA 1936? | A2: No. | Q3: For period C, is your foreign employment income (including allowances) whilst posted in Country A exempt from taxation in Australia under section 23AG of ITAA 1936? | A3: Yes.

Relevant facts and circumstances: You are an Australian tax resident. You are currently employed by Employer A as a Program Implementation Lead for the Department of Foreign Affairs and Trade (DFAT) funded Strategic Health Infrastructure Program in Country A. For a period, you are contracted to be posted in Country A to deliver the Program. Your contact may be extended to XX XXXX 20XX, but at this time this is unknown and unplanned. You have provided the following information regarding your leave entitlements • You are entitled to XX annual days leave and XX days personal leave. • Leave is accrued pro-rata over the course of XX months. • Leave must be used during your posting. • You are not entitled to take any leave accrued outside of your period of service during your post. Apart from your salary, you will also receive allowances connected with your foreign service. You receive payment of the allowances at the end of the month you incurred them. No allowances are paid outside the period of service. During period A, you worked remotely for the Program in Australia whilst waiting for your Country A visa to be granted. On XX XXXX 20XX, you departed Australia to travel to Country A for the project starting period B of your service. From XX XXXX 20XX to XX XXXX 20XX, you were in Australia for urgent medical treatment. You took paid recreational leave and attended meetings with the project firms in Australia. While in Australia during this period, you used the following leave entitlements, which accrued from your current foreign service: • XX days recreational leave • XX days sick leave While in Australia during this period, you worked remotely for the Program for XX days. You did not have sufficient recreational leave to take more than XX days off, so you made arrangements to undertake specific Country A project-related activities. On XX XXXX 20XX, you travelled back to Country A. Besides the travel to Australia for the medical treatment, all your work for the Program will be completed in Country A. In late 20XX, your intention is to take recreational leave in Australia. You will not perform work duties during this leave. Country A imposes personal income tax. Your posting is covered by an Arrangement between the Government of Australia and the Government of Country A. The Arrangement records the Participants' cooperation for implementation of the Program in support of the identified development needs of Country A. Under subsection X(X) of the Arrangement, Country A provides an exemption for income tax. Your employer has provided written confirmation that your posting is covered by Section X the Agreement. Upon completion of your posting, you will return to Australia. Australian has a double tax agreement with Country A.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1936 section 23AG | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 subsection 6-15(2) | Income Tax Assessment Act 1997 section 11-15

Reasons for decision: Detailed Reasoning - Question 1 & Question 2: Under subsection 23AG(7) of the ITAA 1936, foreign service means service in a foreign country. This means you will not be eligible for the exemption under section 23AG for the following periods while you were in Australia: • For period A • From XX XXXX 20XX to XX XXXX 20XX (working remotely in Australia for X days in this period) Although, these temporary absences are not considered foreign service, they will still form part of a 'continuous period of foreign service' under section 23AG of the ITAA 1936. The recreational and sick leave taken in the period from XX XXXX 20XX to XX XXXX 20XX, will be exempt under section 23AG of the ITAA 1936 | Detailed Reasoning - Question 3: Your foreign employment income (including allowances) whilst physically posted to Country A for period C will be exempt from taxation in Australia under section 23AG of the ITAA 1936. However, if you perform work while physically in Australia, this work will not be exempt. | Detailed Reasoning - Detailed reasoning: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Ordinary income includes salary and wages and subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income, then it is not assessable income. Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) which deals with exempt foreign employment income. To be entitled to an exemption under section 23AG of the ITAA 1936, a taxpayer must meet three requirements: • The requirement of subsection 23AG(1) must be satisfied; • The taxpayers' continuous foreign service must be directly attributable to one of the listed reasons in subsection 23AG(1AA); and • The taxpayers' foreign earnings must either be not exempt or exempt from income tax in the foreign country for a reason other than those listed in subsection 23AG(2). Subsection 23AG(1) of the ITAA 1936 states that any foreign earnings derived by an Australian resident who has been engaged in foreign service for a continuous period of not less than 91 days are exempt from income tax in Australia subject to the qualifying provisions of section 23AG. Subsection 23AG(7) of the ITAA 1936 provides that foreign service means service in a foreign country as the holder of an office or in the capacity of an employee. Australia is not a foreign country for the purposes of the application of section 23AG of the ITAA 1936. Therefore, service undertaken in Australia cannot be regarded as foreign service. Subsection 23AG(6) of the ITAA 1936 provides that a period during which a person is engaged in foreign service includes any period during which the person is, in accordance with the terms and conditions of that service: a) absent on recreation leave, other than: (i) leave wholly or partly attributable to a period of service or employment other than that foreign service; (ii) long service leave, furlough, extended leave or leave of a similar kind (however described); or (iii) leave without pay or on reduced pay; or b) absent from work because of accident or illness. A break between the end of one period of foreign service and the beginning of a later separate period of foreign service cannot form part of a continuous period of foreign service under section 23AG of the ITAA 1936. However, in some circumstances the 1/6 legislative rule in subsection 23AG(6A) of the ITAA 1936 allows periods of foreign service before and after a break in foreign service to be added together and treated as a continuous period of foreign service. The Commissioner's view on temporary absences is contained in Taxation Determination TD 2012/8 Income tax: what types of temporary absences from foreign service form part of a continuous period of foreign service under section 23AG of the Income Tax Assessment Act 1936 (TD 2012/8). Paragraphs 1, 3, 5 and 6 of TD 2012/8 state: 1. A period during which a person is engaged in foreign service for the purpose of section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) includes a temporary absence from that service if, and only if, the absence is within the scheduled period of foreign service (see Examples 5 and 6) and is both: • in accordance with the terms and conditions of that foreign service (that is, the absence is permitted by the employer, whether in an employment contract or under a separate arrangement); and • for any of the following reasons: - recreation leave on full pay that is attributable to the period of foreign service; - because of an accident or illness of the taxpayer; - because of an accident or illness of a person other than the taxpayer, including the death of another person; or - in the course of carrying out either duties or training required by the employer under a continuing foreign service engagement (that is, work related trips directly related to the foreign service) provided the absences are not excessive by comparison with the scheduled period of foreign service. 3. An absence from foreign service does not form part of a continuous period of foreign service under section 23AG if it is of any of the following kinds: • any recreation leave which is not attributable to the period of foreign service; that is, recreation leave that did not accrue during the period of foreign service; • long service leave, regardless of whether or not it accrued during a period of foreign service; • purchased leave, or other leave without pay or on reduced pay, other than any of the following: sick leave, leave because of an accident or illness of a person other than the taxpayer, including the death of another person (see Explanation at paragraphs 55 and 57 to 59); • furlough; • extended leave; • any kind of leave that is similar to long service leave or extended leave or furlough, regardless of how it is described; • maternity leave or parental leave. 5. However, in some circumstances the 1/6 legislative rule in subsection 23AG(6A) allows periods of foreign service before and after a break in foreign service to be added together and treated as a continuous period of foreign service (see Explanation at paragraphs 74 to 77). 6. A person is not treated as absent from foreign service on days such as weekends, public holidays, rostered days off, days off due to part-time arrangements, flex-days, 'compulsory lay off/over days', 'grounded days' and days off in lieu where those days are part of the normal working conditions for the foreign service (see Explanation at paragraphs 68 to 70). This is the case regardless of whether these days are spent in the country where the person is performing the foreign service or in Australia or a third country. Taxation Ruling TR 2013/7 Income tax: foreign employment income: interpretation of subsection 23AG(1AA) of the Income Tax Assessment Act 1936 , provides the Commissioner's views on the interpretation of aspects of subsection 23AG(1AA) of the ITAA 1936. The ruling specifically considers: • what is the 'delivery of Australian official development assistance by the person's employer' within the meaning of paragraph 23AG(1AA)(a) • when foreign service is 'directly attributable' to the activities listed in subsection 23AG(1AA) • what is a 'disciplined force' within the meaning of paragraph 23AG(1AA)(d) • what is the meaning of 'deployment' within the meaning of paragraph 23AG(1AA)(d); and • who is a 'member' of a disciplined force within the meaning of paragraph 23AG(1AA)(d). Paragraphs 5 to 7 of TR 2013/7 discusses delivery of Australian official development assistance by an employer within the meaning of paragraph 23AG(1AA)(a). The paragraphs state: | Detailed Reasoning - Delivery of Australian official development assistance by an employer: 5. 'Australian official development assistance' refers to activities or programs in respect of which the funding has been (or would properly be) classified, in whole or in part, by the Australian Government as official development assistance (ODA) for the purposes of reporting to the Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee (DAC). The Australian Government bases its classification of funding as Australian ODA solely on the directives of the OECD DAC. 6. In the context of paragraph 23AG(1AA)(a) 'delivery of Australian ODA' means the act of providing, giving or sending forth the relevant Australian ODA by the employer. The 'delivery of Australian ODA by the person's employer' is the doing of the activities which are carrying out or sending forth the Australian ODA. The term 'delivery' includes activities which are necessary for or facilitate carrying out the Australian ODA. Therefore, an employer is delivering Australian ODA for the purposes of section 23AG where they are undertaking activities necessary for or which facilitate the carrying out of Australian ODA even though the expenditure on those particular activities may not be classified as Australian ODA by the Australian Government. Delivery of Australian ODA does not necessarily require an employer to undertake all activities associated with the Australian ODA. | Detailed Reasoning - Directly attributable to: 7. For the purposes of paragraphs 23AG(1AA)(a) to (c) an employee's foreign service is 'directly attributable to' the activities of the employer where the requisite activities of the employer are the immediate and controlling reason why the employee is engaged in that foreign service. Similarly, for the purposes of paragraph 23AG(1AA)(d), the foreign service of an employee deployed as a member of a disciplined force is 'directly attributable' to that deployment where that deployment is the immediate and controlling reason why the employee is engaged in foreign service. This condition must be satisfied throughout the continuous period of foreign service in respect of which the foreign earnings are derived before the earnings can be eligible for exemption under section 23AG. | Detailed Reasoning - Question 1 & 2: Under subsection 23AG(7) of the ITAA 1936, foreign service means service in a foreign country. This means you will not be eligible for the exemption under section 23AG for the following periods while you were in Australia: • For period A • From XX XXXX 20XX to XX XXXX 20XX Although, these temporary absences are not considered foreign service, they will still form part of a 'continuous period of foreign service' under section 23AG of the ITAA 1936. The recreational and sick leave taken in the period from XX XXXX 20XX to XX XXXX 20XX, will be exempt under section 23AG of the ITAA 1936 | Detailed Reasoning - Question 3: Subsection 23AG(1) 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. • 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). From the information provided, during your posting to Country A you will satisfy all of the above criteria. 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 reasons: • 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)). Your income will not be exempt from income tax in Country A only because of one or more of the above reasons. Therefore, subsection 23AG(2) of the ITAA 1936 will not apply to deny an exemption under subsection 23AG(1) of the ITAA 1936. Accordingly, your foreign employment income (including allowances) whilst posted to Country A for period C will be exempt from taxation in Australia under section 23AG of the ITAA 1936. However, if you perform work while physically in Australia, this work will not be exempt.