Private ruling: Exempt foreign employment income – 23AG
Date of advice: 20 April 2018
Published: July 2018
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Is your salary income derived while you are working overseas exempt from income tax under section 23AG of Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You are employed by an Australian organisation. Your employer is a non-government organisation that provides emergency assistance to communities devastated by conflict or major natural disasters by selecting, training and providing competent and effective personnel to humanitarian relief programs worldwide. Your employer is funded by the Australian Government under the International Health Regulations (2005) ATNIF 12 to provide Australian official development assistance (ODA). You will be deployed for a period of 131 days Your income is not exempt from taxation in the foreign country for any of the reasons mentioned in subsection 23AG(2) of the ITAA 1936. The foreign country taxes employment income under its domestic law. There is no tax treaty between Australia and the foreign country.

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

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 foreign country are exempt from income tax in Australia. Foreign earnings includes income consisting of salary, wages, bonuses or allowances (subsection 23AG(7) of the ITAA 1936). To qualify for the exemption the foreign earnings must be derived from the foreign service. That does not mean that the foreign earnings need to be derived at the time of engaging in foreign service. The important test is that the foreign earnings, when derived, need to be derived as result of the undertaking of that foreign service. 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: (a) the delivery of Australian official development assistance by the person's employer (except if that employer is an Australian government agency (within the meaning of the Income Tax Assessment Act 1997 )); (b) the activities of the person's employer in operating a public fund that: (i) is covered by item 9.1.1 or 9.1.2 of the table in subsection 30-80(1) of the Income Tax Assessment Act 1997 (international affairs deductible gift recipients); and (ii) meets the special conditions mentioned in that item; (c) the activities of the person's employer, if the employer is exempt from income tax because of paragraph 50-50(1)(c) or (d) of the Income Tax Assessment Act 1997 (prescribed institutions located or pursuing objectives outside Australia); (d) the person's deployment outside Australia as a member of a disciplined force by: (i) the Commonwealth, a State or a Territory; or (ii) an authority of the Commonwealth, a State or a Territory; (e) an activity of a kind specified in the regulations. In your case, you were deployed to a foreign country by your employer to provide ODA. As your deployment is directly attributable to the delivery of Australian ODA, you satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936. As you receive a salary from your foreign employment, this salary is considered to be derived from your foreign service. Therefore, your salary is foreign earnings from foreign service for the purposes of subsection 23AG(1) of the ITAA 1936. Subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG(1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the following. (a) a law of the foreign country giving effect to a double tax agreement; (b) a double tax agreement; (c) provisions of a law of the foreign country under which income covered by any of the following categories is generally exempt from income tax: (i) income derived in the capacity of an employee; (ii) income from personal services; (iii) similar income; (d) the law of the foreign country does not provide for the imposition of income tax on one or more of the categories of income mentioned in paragraph (c); (e) a law of the foreign country corresponding to the International Organisations (Privileges and Immunities) Act 1963 or to the regulations under that Act; (f) an international agreement to which Australia is a party and that deals with: (i) diplomatic or consular privileges and immunities; or (ii) privileges and immunities in relation to persons connected with international organisations; (g) a law of the foreign country giving effect to an agreement covered by paragraph (f). There is no tax treaty between Australia and the foreign country. Therefore, paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936 will not apply. As the laws of the foreign country provide for the imposition of income tax and do not generally exempt employment income from income tax, paragraphs 23AG(2)(c) and (d) of the ITAA 1936 will not apply. None of the other reasons in subsection 23AG(2) of the ITAA 1936 apply to your situation. In your case, you are engaged in employment overseas for a continuous period of not less than 91 days, and none of the reasons listed in subsection 23AG(2) of the ITAA 1936 apply in your situation. Consequently, the salary you earn during your deployment to the foreign country are exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936.