Private ruling: International - Salary and wages
Published: December 2012
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2012

Ruling: Questions and answers | Are the salary and wages which you are entitled to receive from deployment to Another Country exempt income in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | Yes. | Are the overseas allowances which you are entitled to receive from deployment to Another Country exempt income in Australia under section 23AG of the ITAA 1936? | Yes.

Relevant facts and circumstances: You wish to fill the position of Advisor. The position is located in Another Country. The position is funded by AusAid. Your employer is a Federal Government Agency. Your foreign earnings will be attributable to the delivery of Australian official development assistance. Your foreign earnings are made up of salary and allowances. The allowances you will receive in Another Country include relocation allowance, housing, security and schooling. You will not take any breaks other than your recreation leave which you will accrue as a result of your foreign service. You will not be performing any work related duties during your recreation leave. Australia has a tax treaty with Another Country

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG | Income Tax Assessment Act 1936 Subsection 23AG(1) | Income Tax Assessment Act 1936 Subsection 23AG(7) | Income Tax Assessment Act 1936 Subsection 23AG(1AA) | Income Tax Assessment Act 1936 Subsection 23AG(2) | Income Tax Assessment Act 1936 Paragraph 23AG(2)(b) | International Tax Agreements Act 1953 Section 3AAA | International Tax Agreements Act 1953 Section 5

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 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 a result of the undertaking of that foreign service. 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 your case, you will be appointed to undertake a deployment to Another Country on an AusAID project as an Adviser. As your deployment will be directly attributable to the delivery of an Australian overseas aid program by AusAID, you satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936. In addition to your salary, you will receive overseas allowances. Salary and overseas allowances As you will receive a salary from your employment in Another Country, this salary will be considered to be derived from your foreign service. The overseas allowances you are entitled to will be earned in the course of your foreign service, they will be considered to be derived from your foreign service. Therefore, your salary and overseas allowances will be foreign earnings from foreign service for the purposes of subsection 23AG(1) of the ITAA 1936. 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 (paragraph 23AG(2)(b) of the ITAA 1936). Australia has a tax treaty with Another Country (Another Country Agreement) which operates to avoid the double taxation of income received by residents of Australia and Another Country. Article 6(1) of the Another Country 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 Another Country if the services are rendered in Another Country and the individual is a citizen of Another Country, or did not become a resident of Another Country solely for the purpose of performing the services. The employment income you will receive in relation to your deployment to Another Country will be taxable only in Australia under Article 6(1) of the Another Country Agreement as you are an Australian resident and the income is paid by Australia in respect of services rendered in the discharge of governmental functions. As the employment income you will receive while posted to Another Country is exempt from tax in Another Country because of the operation of a tax treaty, paragraph 23AG(2)(b) of the ITAA 1936 would normally apply and the income would therefore not be exempt from tax under subsection 23AG(1) of the ITAA 1936. However, the income you earn while on posting will also be exempt from tax in Another Country because of the terms of the General Agreement on Development Cooperation between the Government of Australia and the Government of the Another Country. The exemption provided by the agreement does not fall under any of the other exemption categories under subsection 23AG(2) of the ITAA 1936. You satisfy the conditions for exemption under section 23AG of the ITAA 1936. Accordingly, the salary and overseas allowances you will receive from employment in Another Country will be exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936.

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