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Edited version of your private ruling
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Ruling
Subject: Assessability of foreign salary
Question and answer
Is the salary you derived from employment in Country X in the income year ended 30 June 2012 exempt income in Australia?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2012.
The scheme commenced on:
1 July 2011.
Relevant facts and circumstances
You are a resident of Australia for tax purposes.
You are an employee of the Organisation Y.
You were subcontracted to an aid organisation to work in Country X on an approved overseas project for two years.
You took several days of annual leave during this time.
Your annual leave was accrued during your employment in Country X.
You did not perform any work when you were on annual leave.
You were liable to pay tax in Country X.
Your employer did not pay you any allowances while you were working in Country X.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-15
Income Tax Assessment Act 1997 Section 11-15
Income Tax Assessment Act 1936 Section 23AG
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Salary and wages are ordinary income for the purpose of subsection 6-5(2) of the ITAA 1997.
Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not included in assessable income.
Section 11-15 of the ITAA 1997 lists those provisions dealing with income that may be exempt. Included in this list is section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936), which deals with overseas employment income.
Subsection 23AG(6) of the ITAA 1936 provides that certain temporary absences form part of a period of foreign service such as recreation leave which is accrued as a result of the foreign service, other than long service leave and leave without pay.
In your case, you took some recreation leave which was wholly attributable to the period of foreign service. This recreation leave forms part of your foreign service.
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 the following:
· delivery of Australian official development assistance (ODA) by your employer.
· activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund, or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced a disaster (a public disaster relief fund) .
· activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax because it is located outside Australia or the institution is pursuing objectives outside Australia.
· deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force.
Paragraph 23AG(1AA)(a) of the ITAA 1936 is relevant to your employment. ODA is assistance delivered through the Australian Governments overseas aid program, as administered by the Department of Foreign Affairs and Trade and/or the Australian Agency for International Development (AusAid).
As you were employed by Organisation Y and subcontracted to an aid organisation on a development program which was listed as Australian Official Development Assistance, your salary and allowances will fall under paragraph 23AG(1AA)(a) of the ITAA 1936.
Therefore, as you worked in Country X for a period of not less than 91 days, on a development program administered by an aid organisation, your salary and allowances are exempt from tax in Australia under subsection 23AG(1) of the ITAA 1936.
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