Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private ruling

Authorisation Number: 1011625153830

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

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.

Ruling

Subject: Income- exempt

Is the income you will receive in respect of your posting to x by the Australian Defence Force exempt income in Australia?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on:

1 July 2010

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 a member of the Australian Defence Force (ADF).

You are an Australian resident for taxation purposes.

You will be working in x on a three year posting.

While in x you will receive a number of allowances as well as your pay.

You will accrue recreation leave per year and you expect to spend this time in countries other than x, and primarily in Australia.

Your income is exempt from taxation in x as a result of a treaty.

You have provided a copy of the Treaty with your application.

Australia has a double tax agreement with x.

Relevant legislative provisions

Section 23AG(1) of the Income Tax Assessment Act 1936

Section 23AG(2) of the Income Tax Assessment Act 1936

Section 23AG(1AA) of the Income Tax Assessment Act 1936

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Section 23AG(1) of the Income Tax Assessment Act 1936 (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.

To qualify for the exemption the foreign earnings must be derived from foreign service. As you receive a pay from your foreign employment, this payment is considered to be derived from your foreign service.

The allowances are designed to cover various costs and hardship of the foreign service. As they will be paid to compensate for costs arising from the foreign service and for the hardship attributable to the foreign service, they are considered to be derived from your foreign service.

Therefore, your pay and allowances are foreign earnings from foreign service for the purposes of subsection 23AG(1) of the ITAA 1936.

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:

As you are a government employee deployed overseas as a member of a disciplined force, you satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936.

However, section 23AG(2) of the ITAA 1936 provides that the exemption from Australian tax will not apply where the income is exempt from income tax in the foreign country only because of one or more of the following:

Where the earnings are exempt in the foreign country for another reason (for example, because of the operation of a DTA and a specific agreement), the exemption will still apply.

The DTA between Australia and x 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.

Your income and allowances you earn whilst posted to x is exempt from taxation in x in accordance with the provisions of the Treaty.

Your earnings are exempt from taxation in x for one of the reasons listed in 23AG(2) of the ITAA 1936 (by virtue of a DTA) however they are also exempt for a reason not listed. Therefore section 23AG(2) does not deny you the exemption found in 23AG(1) of the ITAA 1936.

As you will be working in x for a period of not less than 91 days as a member of the ADF, your income earned will be exempt from taxation in Australia under section 23AG(1) of the ITAA 1936.

Note:

You must declare foreign employment income you earn that is exempt from Australian tax as it is taken into account to work out the amount of tax you have to pay on your assessable income. Your exempt foreign employment income is not taxed in Australia, but it will affect the tax you are liable to pay on any other income you earn.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).