Private ruling: Assessability of foreign employment income
Date of advice: 8 September 2016
Published: October 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Question and answer | Is the foreign employment income you derived from working in country X exempt from income tax in Australia under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936)? | Yes.

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You were deployed by an Australian government department to work in a program in country X. You were in country X working in the program for more than 91 days. The program was funded by the Australian government and was directly attributable to the delivery of official development assistance. There is an agreement on Development Co-Operation between the government of Australia and the government of country X which exempts your salary from taxation in that country.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 23AG(1) | Income Tax Assessment Act 1936 Subsection 23AG (1AA) | Income Tax Assessment Act 1936 Subsection 23AG(2) | Income Tax Assessment Act 1936 subsection 23AG(7)

Reasons for decision: Summary: Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings of an Australian resident derived during a continuous period of foreign service of not less than 91 days employment in a foreign country are exempt from tax in Australia. 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 (ODA) 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. • Deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force. You were employed by an Australian government department to work in a program in country X which was funded by the Australian government and was directly attributable to the delivery of ODA. Therefore, 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, the income must be exempt from tax in country X for a reason other than, or in addition to, the conditions listed above. In your case, there is an agreement on Development Co-Operation between the government of Australia and the government of country X which exempts your salary from taxation in that country. 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 employment income you derived during your employment in country X is exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936.