Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

Division 1 - General  

SECTION 23AG   EXEMPTION OF INCOME EARNED IN OVERSEAS EMPLOYMENT  

23AG(1)    

Where a resident, being a natural person, has been engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived by the person from that foreign service are exempt from tax.

23AG(1AA)    
However, those foreign earnings are not exempt from tax under this section unless the continuous period of foreign service is directly attributable to any of the following:

(a) the delivery of Australian official development assistance by the person ' s employer (except if that employer is an Australian government agency (within the meaning of the Income Tax Assessment Act 1997 ));

(b) the activities of the person ' s employer in operating a public fund that:

(i) is covered by item 9.1.1 or 9.1.2 of the table in subsection 30-80(1) of the Income Tax Assessment Act 1997 (international affairs deductible gift recipients); and

(ii) meets the special conditions mentioned in that item;

(c) the activities of the person ' s employer, if the employer is exempt from income tax because of paragraph 50-50(1)(c) or (d) of the Income Tax Assessment Act 1997 (prescribed institutions located or pursuing objectives outside Australia);

(d) the person ' s deployment outside Australia as a member of a disciplined force by:

(i) the Commonwealth, a State or a Territory; or

(ii) an authority of the Commonwealth, a State or a Territory;

(e) an activity of a kind specified in the regulations.

23AG(1A)    

A person is taken, for the purposes of subsection (1), to have been engaged in foreign service for a continuous period of 91 days if:

(a) the person died at a time when he or she was engaged in foreign service for a continuous period of less than 91 days; and

(b) he or she would have otherwise continued to be engaged in the foreign service; and

(c) his or her continuous period of engagement in the foreign service would have otherwise been a period of at least 91 days.

23AG(2)    

An amount of foreign earnings derived in a foreign country is not exempt from tax under this section if the amount is exempt from income tax in the foreign country only because of any of the following:

(a) a law of the foreign country giving effect to a double tax agreement within the meaning of Part X ;

(b) a double tax agreement within the meaning of Part X ;

(c) provisions of a law of the foreign country under which income covered by any of the following categories is generally exempt from income tax:

(i) income derived in the capacity of an employee;

(ii) income from personal services;

(iii) similar income;

(d) the law of the foreign country does not provide for the imposition of income tax on one or more of the categories of income mentioned in paragraph (c);

(e) a law of the foreign country corresponding to the International Organisations (Privileges and Immunities) Act 1963 or to the regulations under that Act;

(f) an international agreement to which Australia is a party and that deals with:

(i) diplomatic or consular privileges and immunities; or

(ii) privileges and immunities in relation to persons connected with international organisations;

(g) a law of the foreign country giving effect to an agreement covered by paragraph (f).

23AG(2A)    

Subsection (2) does not apply in relation to foreign earnings to the extent that the person derived them from foreign service in Iraq after 31 December 2002 but before 1 May 2004.

23AG(3)    

If the income of a taxpayer of a year of income consists of an amount that is exempt from tax under this section (in this section called the exempt amount ) and other income, the amount of tax (if any) payable in respect of the other income is calculated using the formula:

Notional gross tax     Notional gross taxable income

×   Other taxable income

where:

Notional gross tax means the number of whole dollars in the amount of income tax that would be assessed under this Act in respect of the taxpayer ' s taxable income of the year of income if:

(a) the exempt amount were not exempt income; and

(aa) if the exempt amount is a payment covered by section 83-240 or 305-65 of the Income Tax Assessment Act 1997 - the exempt amount (excluding any part of that amount that represented contributions made by the taxpayer) were assessable income of the taxpayer; and

(b) the taxpayer were not entitled to any rebate of tax.

Notional gross taxable income means the number of whole dollars in the amount that would have been the taxpayer ' s taxable income of the year of income if the exempt amount were not exempt income.

Other taxable income means the amount (if any) remaining after deducting from so much of the other income as is assessable income:

(d) any deductions allowable to the taxpayer in relation to the year of income that relate exclusively to that assessable income; and

(e) so much of any other deductions (other than apportionable deductions) allowable to the taxpayer in relation to the year of income as, in the opinion of the Commissioner, may appropriately be related to that assessable income; and

(f) the amount calculated using the formula in subsection (4).

23AG(4)    

The formula referred to in paragraph (3)(f) is:

where:

Apportionable deductions means the number of whole dollars in the apportionable deductions allowable to the taxpayer in relation to the year of income.

Other taxable income means the amount that, apart from paragraph (3)(f), would be represented by the component Other taxable income in subsection (3).

Notional gross taxable income means the number of whole dollars in the amount that would have been the taxpayer ' s taxable income of the year of income if the exempt amount were not exempt income.

23AG(5)    

Subsection (3) applies to a taxpayer in respect of income of a year of income as if any payment covered by section 83-240 or 305-65 of the Income Tax Assessment Act 1997 that related to the termination of employment that was made in respect of the taxpayer during that year of income were income of the taxpayer of that year of income that is exempt from tax under this section.

23AG(5A)    
(Repealed by No 83 of 1999)

23AG(5B)    
(Repealed by No 83 of 1999)

23AG(6)    
For the purposes of this section, a period during which a person is engaged in foreign service includes any period during which the person is, in accordance with the terms and conditions of that service:

(a) absent on recreation leave, other than:

(i) leave wholly or partly attributable to a period of service or employment other than that foreign service;

(ii) long service leave, furlough, extended leave or leave of a similar kind (however described); or

(iii) leave without pay or on reduced pay; or

(b) absent from work because of accident or illness.

23AG(6A)    

2 or more periods in which a person has been engaged in foreign service are together taken to constitute a continuous period of foreign service until:

(a) the end of the last of the 2 or more periods; or

(b) a time (if any), since the start of the first of the 2 or more periods, when the person ' s total period of absence exceeds ⅙ of the person ' s total period of foreign service;

whichever happens sooner.

Example:

Kate is engaged in foreign service for 20 days, is absent for 2 days and is then engaged in foreign service for 10 days. These 2 periods of foreign service constitute a continuous period of foreign service, because the total period of absence is never more than 1/10 of the total period of foreign service.

Kate is then absent for 5 days before commencing a further period of foreign service. No matter how long the further period lasts, it can never constitute a continuous period of foreign service with the first 2 periods of foreign service, because on the fourth day of the second absence the total period of absence is ⅕ of the total period of foreign service.

23AG(6B)    

In subsection (6A):

total period of absence
, in relation to a particular time, means the number of days, in the period starting at the start of the first of the 2 or more periods and ending at that time, for which the person was not engaged in foreign service.

total period of foreign service
, in relation to a particular time, means the number of days, in the period starting at the start of the first of the 2 or more periods and ending at that time, for which the person was engaged in foreign service.

23AG(6C)    
(Repealed by No 162 of 2005)

23AG(6D)    
(Repealed by No 162 of 2005)

23AG(6E)    
(Repealed by No 162 of 2005)

23AG(6F)    

Where:

(a) a person has derived foreign earnings during a year of income; and

(b) at the time of making an assessment in respect of income of the person of the year of income, the Commissioner is of the opinion that, at a later time, circumstances will exist because of which those foreign earnings will be exempted from tax by this section;

the Commissioner may apply the provisions of this section as if those circumstances existed at the time of making the assessment.

23AG(6G)    
(Repealed by No 75 of 2010 )

23AG(6H)    
(Omitted by No 100 of 1991)

23AG(6J)    
(Repealed by No 162 of 2005)

23AG(7)    

In this section:

double tax agreement
(Repealed by No 59 of 2019)

employee
includes:

(a) a person employed by a government or an authority of a government or by an international organisation; or

(b) a member of a disciplined force.

foreign earnings
means income consisting of earnings, salary, wages, commission, bonuses or allowances, or of amounts included in a person ' s assessable income under Division 83A of the Income Tax Assessment Act 1997 (about employee share schemes), but does not include any payment, consideration or amount that:

(a) is included in assessable income under Division 82 or Subdivision 83-295 or Division 301 , 302 , 304 or 305 of the Income Tax Assessment Act 1997 ; or

(b) is included in assessable income under Division 82 of the Income Tax (Transitional Provisions) Act 1997 ; or

(c) is mentioned in paragraph 82-135(e) , (f), (g), (i) or (j) of the Income Tax Assessment Act 1997 ; or

(d) is an amount transferred to a fund, if the amount is included in the assessable income of the fund under section 295-200 of the Income Tax Assessment Act 1997 .

foreign service
means service in a foreign country as the holder of an office or in the capacity of an employee.

income tax
, in relation to a foreign country:

(a) in all cases - does not include a municipal income tax; and

(b) in the case of a federal foreign country - does not include a State income tax.