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Edited version of private ruling
Authorisation Number: 1011815202282
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Ruling
Subject: Foreign income - Salary - Country A
Question 1
Is your income derived as an employee of an institution in Australia, working in a foreign country on a project exempt foreign employment income in Australia?
Answer: No.
This ruling applies for the following periods
1 July 2009 to 30 June 2010
1 July 2010 to 30 June 2011
The scheme commenced on
12 July 2009
Relevant facts
You are an employee of an institution in Australia and was posted overseas to complete a project.
Your employer won a contract with another service provider in Australia.
The Australian Agency for International Development (AusAID) has funded the service provider in Australia.
You commenced work on the project in the 2009-10 year of income.
Relevant legislative provisions
Subsection 23AG(1) of the Income Tax Assessment Act 1936
Subsection 23AG(1AA) of the Income Tax Assessment Act 1936
Paragraph 23AG(1AA)(a) of the Income Tax Assessment Act 1936
Reasons for decision
Subsection 23AG(1) of the Income Tax Assessment Act (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 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 (ODA) by the person's employer (paragraph 23AG(1AA)(a) of the ITAA 1936).
Delivery of Australian official development assistance by the person's employer
ODA 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 subsection 23AG(1AA) of the ITAA 1936 provides guidance on the meaning of the phrase. The relevant paragraphs are below:
Australian official development assistance
1.19 Australian official development assistance (ODA) is assistance delivered through the Australian Government's overseas aid program, as administered by the Department of Foreign Affairs and Trade and/or the Australian Agency for International Development (AusAID). Australian ODA aims to reduce poverty and achieve sustainable development in developing countries, in line with Australia's national interest.
1.20 In addition to providing Australian ODA directly, AusAID also competitively contracts aid work to Australian and international entities. Thus, in practice, individuals involved in the delivery of Australian ODA can include both Australian Public Service (APS) employees and non-APS employees.
1.21 For the purposes of subsection 23AG(1AA) the delivery of Australian ODA must be undertaken by the person's employer, which includes AusAID and an entity contracted by AusAID to assist in the delivery of Australian ODA.
The EM reveals that paragraph 23AG(1AA)(a) of the ITAA 1936 is intended to restrict the section 23AG of the ITAA 1936 exemption to foreign earnings derived by other employees delivering ODA on behalf of their employers who in turn have been contracted by the Australian Government to assist in the delivery of ODA under the aid program that is administered by AusAID or DFAT.
Accordingly, for non-APS employees to be eligible for exemption pursuant to paragraph 23AG(1AA)(a) of the ITAA 1936, their employer must have been contracted directly by the Australian Government to assist in the delivery of ODA under the overseas aid program that is administered by AusAID or DFAT.
Your employer has not been contracted directly by AusAID or the Australian Government to assist in the delivery of Australian official development assistance. Rather, your employer has been contracted by the head contractor under a separate subcontractor agreement.
As you were engaged by your employer to carry out services in relation to the activity under the subcontractor agreement between your employer and service provider to implement ODA , you are not entitled to claim an exemption for the foreign earnings derived from foreign service under section 23AG of the ITAA 1936.
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