Private ruling: Foreign employment income
Date of advice: 8 February 2018
Published: June 2018
Ruling period: Year ending 30 June 20XX
Date scheme commenced: Month A 20XX

Ruling: Q1: Is the foreign employment income you derive from working overseas exempt income in Australia under Subsection 23AG of the Income Tax Assessment Act 1936 ? | A1: Yes

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You are posted overseas under a project. Your deployment is from Month A 20XX until Month B 20XX, which is a period of more than 91 days. The project is a Department of Foreign Affairs and Trade (DFAT) funded initiative with your employer as the managing contractor.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 23AG

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, ● 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, and ● 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. Considering your circumstances, it is accepted that you meet the above criteria and the income referable to your foreign employment is exempt from income tax in Australia. | Detailed Reasoning - Detailed reasoning: Subsection 23AG (1AA) of the ITAA 1936 provides that foreign earnings are not exempt from tax unless the continuous period of foreign service is directly attributable to any of the following: ● Delivery of Australian official development assistance by your employer (except if that employer is an Australian government agency (within the meaning of the Income Tax Assessment Act 1997 )). ● Activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund, or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced a disaster (a public disaster relief fund). ● Activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax because it is located outside Australia or the institution is pursuing objectives outside Australia. ● Deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force. You are an Australian resident for taxation purposes who will be engaged in foreign service for a period of more than 91 days. You will be employed to work overseas under a project that is funded by the DFAT and is managed by your employer. You satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936. The income referable to your foreign service would therefore be exempt from income tax in Australia. Subsection 23AG(2) of the ITAA 1936 provides that no exemption is available under subsection 23AG(1) of the ITAA 1936 in circumstances where an amount of foreign earnings derived from service in a foreign country is exempt from tax in the foreign country solely because of: ● a tax treaty or a law of a country that gives effect to such an agreement (paragraphs 23AG(2)(a) and (b) of the ITAA 1936); ● the law of a foreign country generally exempts from, or does not provide for the imposition of income tax on income derived in the capacity of an employee, income from personal services or any other similar income (paragraphs 23AG(2)(c) and (d) of the ITAA 1936), or ● a law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations applies (paragraphs 23AG(2)(e), (f) and (g) of the ITAA 1936). There is currently no double taxation agreement between Australia and the country you are deployed to or any law to that effect. The employment earnings in this country are not exempt under a general provision from income tax. There are no general provisions that would ordinarily exempt your income from tax in the country you are deployed to. You were not deployed as a member of an international organisation as defined in the International Organisations (Privileges and Immunities) Act 1963 . On your deployment you were neither a member of a diplomatic or consular mission, nor covered by an international agreement that would give rise to any privileges or immunities. Therefore none of the exclusions listing exemptions under subsection 23AG(2) of the ITAA 1936 apply to your foreign earnings. Accordingly, the salary that you receive from services performed in the country you are deployed to are exempt from tax under subsection 23AG(1) of the ITAA 1936 and are not assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 .