Private ruling: Foreign source income
Date of advice: 13 July 2018
Published: September 2018
Ruling period: Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2018

Ruling: Q1: Is your foreign employment income exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes.

Relevant facts and circumstances: You are a member of a disciplinary force. You will be posted to Country X. You are not a member of an Australian diplomatic mission You are not covered by the Vienna Convention or any other similar agreement Australia has entered into regarding diplomatic, consular or other protection. There is no double taxation agreement between the Government of Country X and the Government of Australia.

Relevant legislative provisions: Section 23AG of the ITAA 1936

Reasons for decision: Summary: Section 23AG of the ITAA 1936 provides that where you are working overseas and earning foreign employment income, the income is exempt from income tax in Australia if all of the following applies: ● you are an Australian resident; ● you are engaged in continuous foreign services as an employee for 91 days or more; ● the foreign service is ‘directly attributable’ to an activity listed in subsection 23AG(1AA) of the ITAA 1936 (the listed activities include deployment outside Australia as a member of a disciplined force); and ● you are not exclude from the exemption by specific conditions listed in the law. Subsection 23AG(2) of the ITAA 1936 provides that no exemption is available in circumstances where an amount of foreign earnings derived in a foreign country is exempt from tax in the foreign country solely because of: ● a double tax agreement or a law of a country that gives effects to such an agreement (paragraphs 23AG(2)(a) and (b)); ● a law of that foreign country which generally exempts from, or does not provide for, the imposition of income tax on income derived in the capacity of an employee, income from personal services or any other similar income (paragraphs 23AG(2)(c) and (d)); and ● a law or international agreement dealing with diplomatic or consular privileges and immunities, or privileges and immunities of persons connected with international organisations (paragraphs 23AG(2)(e), (f) and (g)). If your foreign employment income is exempt for a reason other than, or in addition to, the conditions listed above, then it will still be exempt from taxation in Australia. In your case, you are an Australian resident; you meet a condition within subsection 23AG(1AA) of the ITAA 1936, you will be engaged in continuous foreign services for 91 days or more. You are not caught by the non-exemption conditions as listed in subsection 23AG(2) of the ITAA 1936. Accordingly, your foreign employment income is exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936.