Private ruling: Exempt foreign employment income
Date of advice: 12 May 2023
Published: 26 June 2023
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the salary you earn while employed overseas exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) ? | A1: Yes. Given a consideration of the whole arrangement, it is accepted that you meet the criteria and the income referable to your foreign service is exempt from income tax in Australia. Subsection 23AG(1) of the 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.

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. You have commenced a multi-year fixed term employment contract to work in a foreign country. The project is being run and funded by the Australian Department of Foreign Affairs and Trade (DFAT) as an official aid project. DFAT is required to report project expenditure to the OECD using the Development Assessment Criteria (DAC). The managing contractor of the project is Company Z. Company Z has subcontracted all aspects of the project to a number of organisations, one of whom is Company Y. Company Y is the entity which engages you as an employee. The income is not taxable in the country in which you are working. The country you will be working in normally taxes income from employment. There is no double tax agreement between Australia and the foreign country.

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