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Ruling

Subject: Assessability of salary and allowances paid while on deployment

Question and answer:

Are the salary and allowances paid fortnightly to you while on deployment to Country X exempt from income tax in Australia?

Answer:

Yes.

This ruling applies for the following period:

1 July 2012 to 30 June 2014.

The scheme commenced on:

1 July 2012.

Relevant facts and circumstances:

You are an employee of the Australian Public Service (APS).

You have been posted to the regional assistance mission to the Country X (RAMX).

You will remain an Australian citizen for taxation purposes while you are posted to RAMX.

You will not perform diplomatic or consular duties.

Your deployment relates directly to the delivery of Australian official development assistance.

Your deployment to RAMX is governed by the Facilitation of the International Assistance Act 2002 (Country X) (the FIA Act).

The RAMX Agreement provides that members of the visiting contingent to Country X as part of RAMX shall be exempt from taxation by Country X government.

Pursuant to the FIA Act, you will be a member of the RAMX visiting contingent while on deployment to the Country X.

While on deployment in the Country X you will be paid salary and allowances on a fortnightly basis.

While on deployment to Country X you will only take leave accrued during the deployment.

Relevant legislative provisions:

Income Tax Assessment Act 1936 Section 23AG.

Reasons for decision

Section 23AG of the Income Tax Assessment Act (ITAA 1936) provides that where an individual who is an Australian resident for taxation purposes is 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.

Foreign service is defined in the ITAA 1936 as service in a foreign country as the holder of an office or in the capacity of an employee. As an employee of the APS on posting to RAMX you are considered to be engaged in foreign service.

Foreign earnings are defined in ITAA 1936 to include salary, wages, bonuses or allowances. The relevant Class Ruling states that the salary and allowances paid fortnightly to APS employees on posting to RAMX, all come within the definition of foreign earnings in the ITAA 1936.

Accordingly, the salary and allowances you are paid fortnightly while on posting to RAMX all constitute foreign earnings.

The exemption from taxation in Australia under section 23AG of the ITAA 1936 on foreign earnings earned in foreign service is not available unless certain conditions are met.

In particular, the exemption is not available if the provisions of subsection 23AG(2) of the ITAA 1936 apply.

Subsection 23AG(2) of the ITAA 1936 specifies that that no exemption is available in circumstances where an amount of foreign earnings derived from service in a foreign country is exempt from tax in the foreign country solely because of:

· a double tax agreement or a law of a country that gives effect to such an agreement,

· the law of a foreign country generally exempts from, or does not provide for the imposition of income tax on income derived in the capacity of an employee, income from personal services or any other similar income, or

· a law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations applies.

As noted:

· There is no double taxation agreement between Australia and Country X.

· The privileges and immunities of persons connected with an international organisation do not apply to the situation in Country X.

· The foreign earnings derived by APS employees in Country X are not exempt under any general provision of Country X tax law. Rather, it is the FAI Act which provides that APS personnel deployed to Country X as part of RAMX shall be exempt from taxation by Country X government on their pay and other emoluments.

Accordingly, relevant class ruling notes that the foreign earnings of APS employees will be exempt in Country X for a reason other than those listed in subsection 23AG(2). Therefore, subsection 23AG(2) does not apply to deny the exemption available under section 23AG.

In your case, you meet the conditions required for the exemption to apply to you because:

· You will be continually deployed to RAMX for more than 91 days.

· Your foreign service relates directly to the delivery of Australian official development assistance to Country X under RAMX.

Subsection 23AG(2) of the ITAA 1936 does not apply to your situation

Conclusion

The salary and allowances you are paid fortnightly while on posting to RAMX are exempt from taxation in Australia.

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