Private ruling: Foreign employment income
Date of advice: 17 February 2017
Published: July 2017
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is the salary you earned while employed overseas exempt from income tax in Australia? | A1: No

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You were deployed to work in an overseas country for a reason listed in section 23AG(1AA) of the Income Tax Assessment Act 1936 (ITAA 1936). You are employed by an Australian Government funded agency. Your employer is not a resident of country A. You were engaged in foreign employment for 91 continuous days. Country A normally taxes salary and wage income. There is no taxation treaty between the Australian Government and country A. There is no agreement between Australia and country A that exempts the income from taxation in country A. Your income is exempt from tax in country A because a law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations applies and you were treated as being connected with an international organisation.

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 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 income tax in Australia. Foreign earnings includes income consisting of 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 29 June 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: ● the delivery of Australia's overseas aid program by the individual's employer; ● the activities of the individual's employer in operating a developing country relief fund or a public disaster relief fund; ● the activities of the individual's employer being a prescribed institution that is exempt from Australian tax; or ● the individual's deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force. In accordance with subsection 23AG(2) of the ITAA 1936, the exemption under subsection 23AG(1) of the ITAA 1936 will not apply if the income is exempt from income tax in the foreign country only because of one or more of the following conditions: ● a tax treaty with Australia or a law giving effect to a treaty agreement ● the foreign country exempts from income tax, or does not provide for the imposition of income tax on, income derived in the capacity of an employee, income from personal services or similar income, or ● a law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations applies. Your income in country A is not taxable in that country because: ● You are resident of Australia, ● You worked in country A for less than 183 days, ● Your remuneration is paid by an Australian company - an employer who is not a resident of country A, ● There is a law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations which applies. Consequently, as your income is exempt in country A solely because of a law or international agreement, your salary and allowances will not be exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936.