Private ruling: Foreign Income
Ruling period: Year ended 30 June 2010. | Year ending 30 June 2011.
Date scheme commenced: 1 July 2009.

Ruling: Q1: Is the foreign employment income you derive from working in Country A exempt income in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: 


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

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. Foreign earnings include salary, wages, bonuses or allowances (subsection 23AG(7) of the ITAA 1936). Section 23AG of the ITAA 1936 has been amended so that foreign employment income derived by Australian residents will only be exempt in certain circumstances. These amendments are effective from 1 July 2009. 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. · 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. In your case, you were appointed to undertake a deployment to Country A as a specific federal government agency member. Hence, your deployment satisfies one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936. However, the exemption does not apply if the income is exempt from tax in the foreign country only because of any of the reasons listed in subsection 23AG(2) of the ITAA 1936. One of these reasons is a tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act) (paragraph 23AG(2)(b) of the ITAA 1936). Australia has a tax treaty with Country A (Country A Agreement) which operates to avoid the double taxation of income received by Australian and Country A residents. A specific section in an Article of the Country A Agreement provides that remuneration paid by Australia to any individual in respect of services rendered in the discharge of governmental functions shall be taxable only in Australia. However, such remuneration will be taxable only in Country A if the services are rendered in Country A and the individual is a citizen of Country A, or did not become a resident of Country A solely for the purpose of performing the services. The employment income you received in relation to your deployment to Country A is taxable only in Australia, and exempt from tax in Country A under a specific section in an Article of the Country A Agreement as you are an Australian resident and the income was paid by Australia in respect of services rendered in the discharge of governmental functions. Consequently, as your income was exempt from tax in Country A solely because of the Country A Agreement, your foreign employment income derived from working in Country A is not exempt from income tax in Australia under subsection 23AG(1) 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. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You are an Australian resident for income tax purposes. | You were deployed to work in Country A from some time in the 2009-10 to 2010-11 income year. | You were deployed by your employer - a federal government agency - to work at a specific centre in Country A. | You were deployed to Country A on a specific role. | You were engaged in foreign employment for more than 91 continuous days. | Australia does have a tax treaty with Country A. | Country A taxes employment income under its domestic law.