Private ruling: Foreign employment income
Date of advice: 9 October 2018
Published: January 2019
Ruling period: XX/20YY to XX/20YY
Date scheme commenced: XX/20YY

Ruling: Q1: Is the foreign employment income you derived from working in a foreign country exempt income in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: No.

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You are an officer in the Australian armed forces. You have been re-engaged and posted to a foreign country. The posting commences on XX/20YY and is continuous until XX/20YY. You will be in for more than 91 days. You were seconded to the a foreign country Defence Force after the Australian Government agreed to support a request from the Government of a foreign country to establish a foreign country's proposed National Defence College, with a senior Australian military officer to be seconded to the College for X years from 20YY. Without a private ruling, the Australian Defence Organisation will continue to treat the salary paid while you are deployed overseas as normal salary subject to PAYG Withholding and to be reported on the PAYG Payment Summary. You will not be required to report this income in a foreign country and therefore will not pay tax on it there. You have supplied a copy of the posting authority and a media release regarding the appointment. There is not a Memorandum of Understanding (MOU) or other bi-lateral agreement between Australia and a foreign country which exempts your income from tax in a foreign country.

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

Reasons for decision: Summary: 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 will be employed to work in a foreign country by the Australian Government as a member of a disciplined force. You satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936. 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). In order for your employment income to be exempt from tax in Australia under section 23AG of the ITAA 1936, the income must not be exempt from tax in a foreign country only because of one of the reasons listed in subsection 23AG(2) of the ITAA 1936. You will not be required to report this income in a foreign country and therefore will not pay tax on it there because your payments will be made from the Australian Defence Force in Australia. Therefore, subsection 23AG(2) of the ITAA 1936 will not apply to deny the exemption under subsection 23AG(1) of the ITAA 1936. Accordingly, the salary you receive during your employment in a foreign country is exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936.