Private ruling: International income - 23AG
Date of advice: 18 July 2025
Published: 15 September 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: DDMMYYYY

Ruling: Q1: From DDMMYYYY to DDMMYYYY, 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 DDMMYYYY to DDMMYYYY, is your foreign employment income (including allowances) whilst posted in Country A exempt from taxation in Australia under section 23AG of ITAA 1936? | A2: 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. 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 and is not accrued after the XX-month period. • You intend to use all your annual leave 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 under your contract. You receive a mobility allowance, and a project vehicle that can be used for personal use (getting to and from work, and as required on weekends/out of office hours). Your mobility is intended to offset the additional costs incurred by aid-works who are required to work in a country other than their home country. It's not a salary bonus, but rather a cost-recovery allowance. You receive payment of the allowances at the end of the month you incurred them. From DDMMYYYY to DDMMYYYY, you worked remotely in Australia whilst waiting for your visa approval. You were paid for this period. Your work in Australia primarily focused on completing employment inductions, completing mandated pre-mobilisation training, and familiarizing yourself with program documentation. On DDMMYYYY, your visa was approved, and you flew to another city in Australia the following day. Your visa is valid until DDMMYYYY. On DDMMYYYY, you received your passport stamp from the Country A embassy. On DDMMYYYY, you departed Australia to travel to Country A for the Program. During your posting, it is unlikely that you will be required to travel to other countries for any extended period, there is a possibility you may be required to undertake sample and/or factory inspections as for quality assurance purposes. At this stage of the program, you are not able to confirm if or when this may happen. You plan on taking annual leave in Australia over the 20XX Christmas period. When you take annual leave in Australia, you will not perform your work duties. 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 6-20 | Income Tax Assessment Act 1997 section 11-15

Reasons for decision: Summary: Question 1 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 period from DDMMYYYY to DDMMYYYYwhile you were working for your employer and waiting for your visa in Australia. Question 2 Your foreign employment income (including allowances) whilst posted to Country A for the period DDMMYYYY to DDMMYYYYwill be exempt from taxation in Australia under section 23AG of the 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 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). Paragraph 3 of TD 2012/8 states: 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. 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). | Detailed Reasoning - Application to your circumstances: Question 1 From DDMMYYYY to DDMMYYYY 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 period from DDMMYYYY to DDMMYYYYwhile you were working for your employer and waiting for your visa in Australia. Question 2 From DDMMYYYY to DDMMYYYY 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 the period from DDMMYYYY to DDMMYYYY will be exempt from taxation in Australia under section 23AG of the ITAA 1936.