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Ruling

Subject: Foreign sourced income

Question and Answer

Is your employment income treated as being paid under a privilege and immunity agreement or a law covering persons connected with international organisations?

No

Is your employment income foreign employment income in accordance with Section 23AG of the Income Tax Assessment Act 1936?

No

Is your employment income exempt foreign employment income in accordance with Section 23AF of the Income Tax Assessment Act 1936?

No

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 an Australian resident for the period in question.

You were contracted by the foreign company incorporated in Country-A.

You were working on a project to deliver a program which was funded by the funding aid organisation.

The funding aid organisation contracted the foreign company to deliver the Program based in Country-B.

Your contract with the foreign company defines you as an independent contractor and excludes you as being defined an employee.

Your contract required you to work in Country-B.

You were employed outside Australia for a total amount of days.

You worked in Australia a few days prior to and a few days after working in the overseas location.

You left the overseas location to attend a meeting in Country-C.

Your income consisted of:

· XYZ per day for work; and

· XY% danger pay

· XY% Hardship Allowance

You were not involved in the delivery of Australian official development assistance.

You state that the activities of your employer in operating a public fund established and maintained to provide monetary relied to people in a developing foreign country who are distressed as a result of a disaster.

You are not deployed outside Australia by an Australian government, or as a member of a disciplined force.

Relevant legislative provisions

Income Tax Assessment Act 1936

Section 23AF

Section 23AG

Income Tax Assessment Act 1997

Section 6-5

Section 6-15

Section 6-20

Section 11-15

International Organisations (Privileges and Immunities) Act 1963

Paragraph 6(1)(d)

Fourth Schedule

Specialized Agencies (Privileges and Immunities) Regulations 1986

Regulation 2

Regulation 8

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 6-20 of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law in your situation the International Organisations (Privileges & Immunities) Act 1963.

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 (ITAA 1936), which deals with foreign earnings.

Employment in international organisations (Specialized Agencies)

Under its domestic law Australia declares its right to impose income tax generally on the world-wide income of Australian residents (as defined in the ITAA) and on the Australian source income of non-residents. Departure from these principles, in the form of privileges and immunities, are contained in specific provisions of Australia's domestic law.

The International Organisations (Privileges & Immunities) Act 1963 is a Commonwealth law under which an international organisation, and persons engaged by it, may be accorded certain privileges and immunities including an exemption from tax. The funding organisation and the foreign company are not listed under the regulations of this act, therefore your income can not be considered in accordance with the immunities under this act.

Income Earned in overseas employment

Section 23AG of the ITAA 1936

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.

In your case, you are an Australian resident individual engaged in foreign service for a continuous period of not less than 91 days. Therefore, your foreign earnings are exempt under section 23AG of the ITAA 1936, provided that all of the conditions in that section are met.

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 any of the following:

a) delivery of Australian official development assistance by your employer;

b) 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);

c) 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; or

d) deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force.

You were engaged as an independent contractor by a company from Country A to work in Country B.

Paragraph 23AG(1AA)(a) of the ITAA 1936 does not apply to your as your foreign service was not directly attributable to the delivery of Australian official development assistance, moreover you were an independent contractor not an employee.

Paragraph 23AG(1AA)(b) of the ITAA 1936 does not apply to you as your payer was not operating a public fund, you were an independent contractor not an employee.

Paragraph 23AG(1AA)(c) of the ITAA 1936 does not apply to you as your payer is not a prescribed charitable or religious institution.

Paragraph 23AG(1AA)(d) of the ITAA 1936 does not apply to you, because you were not deployed as a member of disciplined force of the Australian government.

You have been engaged as an independent contractor by a firm contracted by a foreign government aid program to deliver an aid program. You are therefore not an employee in general terms, not in the employ of an Australian government program or not employed by a prescribed charity. You have not met the conditions set out in Section 23AG.

Your income is therefore not exempt under section 23AG of the ITAA 1936.

Section 23AF of the ITAA1936

Income derived by an Australian resident taxpayer from at least 91 days' continuous employment on an approved overseas project is exempt from tax under section 23AF of the ITAA1936. The taxpayer must be an Australian resident at the time the foreign remuneration is derived.

The services must be performed for an Australian resident, an Australian government or authority (Commonwealth, state or territory), the government or an authority of an overseas country, or a designated international body such as the World Bank or the Asian Development Bank.

As you performed your services for a company working on behalf of a foreign government department, your income is not exempt under section 23AF of the ITAA 1936.

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