Private ruling: Foreign income
Published: August 2011
Ruling period: Year ending 30 June 2011
Date scheme commenced: February 2009

Ruling: A1: 



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 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. 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 Australian official development assistance by the taxpayer's employer (generally provided by AusAID or the Department of Foreign Affairs and Trade); · the activities of the taxpayer's employer in operating a public fund covered by the deductible gift recipient categories overseas aid fund and developed country disaster relief fund; · the activities of the taxpayer's employer where they are a charitable institution or religious institution which is income tax exempt because they are a prescribed institution located outside Australia or pursuing objectives principally outside Australia; · the taxpayer's deployment outside Australia as a member of a disciplined force of Australia (generally considered to be the Australian Defence Force or Australian Federal Police); or · an activity of a kind specified in the regulations. In your case, you have been appointed to undertake duties overseas on an AusAID project. As your deployment is directly attributable to the delivery of Australian official development assistance by AusAID, 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 reasons listed in that subsection. One of the reasons listed is where the income is exempt in the foreign country because of a tax treaty (paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936). There is no tax treaty between Australia and the overseas country. Therefore, paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936 will not apply. As the laws of the overseas 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 overseas is 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. | Subject: Foreign income: Is the salary you receive during deployment overseas exempt in Australia under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936)? | Answer: Yes. This ruling applies for the following period | The scheme commenced on: February 2009 Relevant facts You are an Australian resident employed by AusAID. | Since February 2009 under the technical cooperation for development Memorandum of Understanding (MOU) between Australia and country A you have worked in country A as Australian project personnel. | According to the MOU your foreign services are directly attributable to the delivery of Australian official development assistance by AusAID and you are exempt from the payment of income tax on payments derived from performing these services. | You did not pay any tax to the overseas country.