Private ruling: Foreign employment income
Published: March 2015
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Question and answer | Are the salary and allowances you earned while employed overseas exempt from income tax in Australia? | No.

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You were deployed to an overseas country. Your service was directly attributable to the delivery of Overseas Development Assistance (ODA). You were engaged in foreign employment for more than 91 continuous days and earning foreign earnings. There is no tax treaty between Australia and country A. The law of country A provides for the imposition of income tax on employment income. Your salary was exempt from income tax in country A under their income tax law because you were a non-resident. Your salary was also exempt in country A as you were afforded the rights and privileges as set out in the Vienna Convention on Diplomatic Relations.

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

Reasons for decision: Summary: 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 • the foreign service is directly attributable to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936 • 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. Taxation Determination TD 2005 looks at the application of subsection 23AG(2) which depends, among other things, on whether the phrase 'only because of any of the following' can be construed to mean: a) only because of any one or more of these reasons listed in the subsection; or b) only because of any one, but not more, of these reasons. The correct view is considered to be the first of these meanings. The second meaning would result in foreign earnings which are exempt from foreign tax for two or more of the listed reasons also being exempt from Australian tax. It is not considered that Parliament intended this result. Your salary was exempt for two reasons in the exclusion list. Given a consideration of the whole arrangement, you do not meet the above criteria and the income referable to your foreign service is assessable in Australia.