Private ruling: Assessability of foreign income
Published: October 2012
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the income you derive in Country X exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: No. | Q2: Is the income you derive in Country X exempt from income tax in Australia under section 23AF of the ITAA 1936? | A2: No.

Relevant facts and circumstances: You are a consultant to Organisation Y in Country X in relation to Project Z for a period greater than 91 days. The signed contract for services between you and Organisation Y states that you are an independent contractor and that you are not an employee. Project Z has not been given approved project status by the Trade Minister for the purposes of section 23AF of the ITAA 1936.

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

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Salary and wages are ordinary income for the purpose of subsection 6-5(2) of the ITAA 1997. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not included in assessable income. Section 11-15 of the ITAA 1997 lists those provisions dealing with income that may be exempt. Included in this list are sections 23AF and 23AG of the Income Tax Assessment Act (ITAA 1936), which deal with overseas employment income. | Detailed Reasoning - Section 23AG of the ITAA 1936: Subsection 23AG(1) of the ITAA 1936 provides that where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that foreign service are exempt from tax in Australia. In your case, you are an Australian resident individual and you intend to be engaged in foreign service for a continuous period of not less than 91 days. Therefore, your foreign earnings will be exempt under section 23AG of the ITAA 1936, provided that all of the conditions in that section are met. Subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that those 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 an Australian government (or an authority thereof) as a member of a disciplined force. In your case, it is specifically stated in the signed contract between you and Organisation Y that you are an independent contractor, not an employee. Therefore, conditions (a) (b) and (c) do not apply to you as you do not have an employer and condition (d) does not apply to you as you are not a member of a disciplined force. As your foreign service is not directly attributable to any of the conditions set out in subsection 23AG(1AA) of the ITAA 1936, your foreign earnings are not exempt from income tax in Australia under section 23AG of the ITAA 1936. | Detailed Reasoning - Section 23AF of the ITAA 1936: According to section 23AF of the ITAA 1936, where a taxpayer, being a natural person, has been engaged on qualifying service on a particular approved project for a continuous period of not less than 91 days, any eligible foreign remuneration derived by the person that is attributable to that qualifying service is exempt from tax. In relation to the meaning of 'approved project', subsection 23AF(11) of the ITAA 1936 states that where the Trade Minister is satisfied that the undertaking of an eligible project that was commenced, or is proposed to be commenced, after 19 August 1980 is, or will be, in the national interest, that Minister may, by writing signed by that Minister, approve that eligible project for the purposes of this section. In your case, you are a consultant to Organisation Y in Country X in relation to Project Z. Project Z has not been given approved project status by the Trade Minister for the purposes of section 23AF of the ITAA 1936. As your contract for services does not relate to an approved project, your foreign earnings will not be exempt from income tax in Australia under section 23AF of the ITAA 1936.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.