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Edited version of private ruling

Authorisation Number: 1011565797416

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Ruling

Subject: Foreign employment income

1. Is your employment income derived from country X for the period one exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes.

2. Is your employment income derived from country X for the period two exempt from income tax in Australia under section 23AG of the ITAA 1936?

No.

This ruling applies for the following period

Year ending 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are an Australian resident for taxation purposes.

You are employed by an Australian organisation and you are based in country X.

The period of your employment contract with the Australian organisation to work in country X was for two periods. Your first employment contract was for a period of not less than 91 days and your second employment contract was for a period of less than 91 days.

You provided a letter from your employer which stated that your employment in country X is fully funded by AusAID as part of their humanitarian assistance.

You stated that you are fully funded as an employee of the Australian organisation Delegate by AusAID and the funding is part of the AusAID-funded ARC Delegates Program, which forms part of the Australian Aid Program in the sense that it provides humanitarian assistance to disaster and conflict contexts.

AusAID had an agreement offering to provide funds for the implementation of the Australian organisation Delegates Program 2009-2010 (the Program).

You returned to Australia on leave without pay before the second mission commenced.

There is no tax treaty between Australian and country X.

The laws of country X provide for the imposition of income tax and do not generally exempt employment income from income tax.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 23AG(1)

Income Tax Assessment Act 1936 Subsection 23AG(1AA)(a)

Income Tax Assessment Act 1936 Subsection 23AG(2)

Income Tax Assessment Act 1936 Paragraph 23AG(2)(b)

Income Tax Assessment Act 1936 Subsection 23AG(6)

Reasons for decision

Subsection 23AG(1) of the ITAA 1936 provides that where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that foreign service are exempt from tax in Australia.

However, new subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that those foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to, amongst other things, the delivery of Australian official development assistance by the person's employer.

Delivery of Australian official development assistance by the person's employer

The term 'Australian official development assistance' is not defined for the purposes of section 23AG of the ITAA 1936. However, the Explanatory Memorandum (EM) which accompanied Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009) introducing paragraph 23AG(1AA)(a) of the ITAA 1936 provides guidance on the meaning of the phrase. The relevant paragraphs are below:

The ordinary meaning of 'assistance' in the Macquarie Dictionary is 'the act of assisting; help; aid'. Therefore, adopting the ordinary meaning, 'assistance' for the purposes of section 23AG of the ITAA 1936 would encompass the provision of money, goods or services capable of affording help or aid.

In your case, you are employed by an Australian organisation to undertake a humanitarian mission in country X. The Australian organisation had entered into a contract with AusAID to undertake the project. The contract between the Australian organisation and AusAID state that one of their objectives is to contribute to the Australian organisation global mandate to help victims of conflicts and internal violence by deploying suitably skilled delegates.

Accordingly, your foreign service is directly attributable to the delivery of Australian overseas aid program by AusAID, you are entitled to claim an exemption for the foreign earnings derived from your foreign service under section 23AG of the ITAA 1936.

Subsection 23AG(6) of the ITAA 1936 provides that the period of foreign service will include recreation leave which is accrued as a result of the foreign service, other than long service leave or leave without pay or reduced pay, and will not constitute a break in a period of foreign service.

Employment period one

Your employment period one was more than 91 days. Therefore, your foreign service will satisfy the 91 days continuous period of service.

Accordingly, your income derived from country X is exempt from income tax in Australia for the employment period one under subsection 23AG(1) of the ITAA 1936.

Employment period two

In your case, your break from the end of employment period one constitutes a break in service as this was taken as leave without pay.

During your employment period two you worked a total of less than 91 days in country X.

As you have been engaged in foreign service for a continuous period of less than 91 days, you do not satisfy the conditions under section 23AG of the ITAA 1936.

Accordingly, your income derived from country X is not exempt from income tax in Australia for the employment period two under subsection 23AG(1) of the ITAA 1936.

Exemption of income

The exemption in subsection 23AG(1) of the ITAA 1936 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 the reasons listed is a treaty contained in the International Tax Agreements Act 1953.

Australia does not currently have a tax treaty with country X.

The laws of country X provide for the imposition of income tax and do not generally exempt employment income from income tax.

Accordingly paragraph 23AG(2)(b) of the ITAA 1936 will not apply as the employment income received by you is not exempt from tax in country X. None of the other reasons in subsection 23AG(2) of the ITAA 1936 will apply.

As you satisfy the conditions for exemption under section 23AG of the ITAA 1936, the salary income derived from country X is exempt from income tax under this section.

Therefore, your employment income derived from country X is exempt from income tax in Australia for the employment period one under section 23AG of the ITAA 1936.

Note

Foreign earnings exempt under section 23AG of the ITAA 1936 are taken into account in calculating the tax payable on other income derived by a taxpayer. This method of calculation referred to as exemption with progression prevents the exempt income from reducing the Australian tax payable on the other income. This income needs to be included as exempt foreign employment income in your Australian tax return.


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