Private ruling: Foreign income
Published: January 2014
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the salary you earned while employed overseas exempt from tax in Australia? | A1: Yes

Relevant facts and circumstances: You were a resident of Australia for tax purposes. You were posted to an overseas country for more than 91 days. You were employed by an aid organisation. This posting was funded by X through the aid organisation. You were engaged in foreign employment for more than 91 continuous days. The aid organisation is listed under as a public fund declared by the Treasurer to be a developing country relief fund. The aid organisation is registered with the Charities and Not-for-profits Commission and is a public benevolent institution that operates the aid organisation Project Fund and Developed Country Disaster Relief Fund. There is an agreement (a Memorandum of Understanding) between Australia and the overseas country that exempts the income from taxation in the overseas country.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG | Income Tax Assessment Act 1936 Section 23AG(1) | Income Tax Assessment Act 1936 Section 23AG(1AA) | Income Tax Assessment Act 1936 Section 23AG(2) | Income Tax Assessment Act 1997 Subsection 30-85(2) 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, | In your case, you were a resident of Australia for tax purposes and engaged in foreign service (and derived foreign earnings from that service) for a continuous period of more than 91 days. | However, subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to any of the following: | · delivery of Australian official development assistance by your employer, | · 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, or | · deployment outside Australia by the Australian government (or an authority thereof) as a member of a disciplined force. | You have been employed by an aid organisation. The aid organisation meets the requirements and is listed under as a public fund declared by the Treasurer to be a developing country relief fund. | Further, subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG(1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the reasons listed in that subsection. | There is an agreement (a Memorandum of Understanding) between Australia and the overseas country that exempts your income from taxation in the overseas country. This reason is not listed in subsection 23AG(2) of the ITAA 1936. Therefore, the salary you derived whilst on foreign service in the overseas country is not excluded from section 23AG because of the provisions of subsection 23AG(2) of the ITAA 1936. | Conclusion | The salary you earned while in the overseas country is exempt from tax in Australia under section