Private ruling: International foreign income
Date of advice: 10 August 2018
Published: October 2018
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is your foreign employment income whilst posted to Country A exempt from taxation in Australia under Section 23AG of the Income Tax Assessment Act 1936 ? | A1: Yes

Relevant facts and circumstances: You are an Australian resident for tax purposes. You are posted to Country A on a fulltime assignment from 1 July 20XX until 30 June 20YY as you have entered into a contract to provide program management services to assist with the delivery of a program in Country A. While posted you are not a member of a diplomatic mission, covered by the Vienna Convention or any other similar agreement Australia has entered into regarding diplomatic, consular or other protection. The program which employs you is an infrastructure development program funded through a Direct Funding Arrangement between the Governments of Australia and Country A. You are therefore working on an Australian Official Development Assistance Program whilst you are working in Country A. A Memorandum of Understanding (MOU) between the Government of Australia (GOA) and Government of Country A (GOCA) has been negotiated. Under this MOU paragraph A allows these governments to enter into Subsidiary Arrangements for the purpose of carrying out specific activities. A Specific Arrangement has been negotiated between GOA and GOCA relating to the Australia Assists Program and you have been employed under this program. The Specific Arrangement states that GOCA will “exempt technical specialists from income taxes in respect of income, living and accommodation allowances provided by the Program”. There is no double tax agreement between the Governments of Australia and Country A nor is there any agreement between the two countries that exempts your employment income from being assessable in Country A. Country A normally does not tax income derived in the capacity of an employee and the local Customs and Taxation Department has no legislation relating to the taxation of income.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG. | Income Tax Assessment Act 1997 Subsection 6-15(2). | Income Tax Assessment Act 1997 Subsection 6-5(2)

Reasons for decision: Detailed Reasoning - Assessable income – general: As a general rule, and under the provisions of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), the assessable income of an Australian resident taxpayer includes all the ordinary income they earn from all sources, in or out of Australia in an income year. Income in the form of salary, wages and allowances are all types of ordinary income. Although a payment may be considered ordinary income and will generally be assessable under the provisions of section 6-5 of the ITAA 1997, there are some instances where ordinary income may be excluded from an individual’s assessable income in Australia. This will be the case for example if a specific provision of the tax law makes the income exempt from taxation in Australia. Exemption from taxation under section 23AG of the Income Tax Assessment Act 1936 Section 23AG of the ITAA 1936 provides that foreign earnings are exempt from income tax in Australia where all of the following requirements are satisfied: ● You are a resident of Australia. ● 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. ● From 1 July 200X onwards, the foreign service is directly attributable to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936 (the listed activities include the person’s deployment outside of Australia as a member of a disciplined force by the Commonwealth). ● Subsection 23AG(2) of the ITAA 1936, must not apply to the taxpayer. From the information that you have provided, during your posting to Country A you will satisfied all of the above criteria. | Detailed Reasoning - Conclusion: Accordingly, as you satisfy the exemption conditions provided for under section 23AG of the ITAA 1936, the income that you derive from your overseas deployment to Country A is not assessable in Australia under section 6-5(2) of the ITAA 1997.