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Ruling

Subject: Assessability of deployment allowances

Question and answer:

Are the salary and allowances paid to you while on deployment to an Australian government agency to Country X exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936?

Yes.

This ruling applies for the following period:

1 July 2012 to 30 June 2014.

The scheme commences on:

1 July 2012.

Relevant facts and circumstances:

You are an Australian Public Service (APS) employee.

You have been posted to a position within an Australian government agency.

You have provided a copy of the relevant position description.

You have stated your deployment relates directly to the delivery of Australian official development assistance to a foreign country.

While on deployment you will be paid on a fortnightly basis and your remuneration will include:

· salary,

· cost of posting allowance, and

· hardship allowance.

You will be continually deployed for more than 91 days.

You will not perform diplomatic or consular duties during your posting.

Your deployment is governed by a certain Act. Pursuant to the Act, you will be a member of the visiting contingent.

The Act gives effect to Article 16.6 of an Agreement between Australia and other countries. Article 16.6 of the agreement provides that members of the visiting contingent shall be exempt from taxation by the foreign country.

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 you are considered to be engaged in foreign service while you are posted.

Foreign earnings are defined in section 23AG(7) of the ITAA 1936 to include salary, wages, bonuses or allowances. A Class Ruling states that the salary, as well as the following allowances paid to APS employees on posting, all come within the definition of foreign earnings in the ITAA 1936:

· cost of posting allowance, and

· hardship allowance.

Accordingly, the salary, cost of posting and hardship allowances you will be paid fortnightly during your posting 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 the continuous period of foreign service is directly attributable to at least one of the conditions listed in subsection 23AG(1AA) of the ITAA 1936.

The conditions listed in subsection 23AG(1AA) of the ITAA 1936 include a condition that the foreign service is directly attributable to the delivery of Australian official development assistance (ODA) by the taxpayer's employer (23AG(1AA)(a) of the ITAA 1936).

You have stated that your deployment relates directly to the delivery of Australian ODA to the foreign country. Furthermore, 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 in the Class Ruling:

There is no double taxation agreement between Australia and the foreign country.

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

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

Accordingly, the Class Ruling notes that the foreign earnings of APS employees will be exempt 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 under section 23AG of the ITAA 1997 to apply to you because:

You will be continually deployed for more than 91 days.

You have stated your deployment relates directly to the delivery of Australian ODA to the foreign country.

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

Conclusion

Based on the facts in this case, the salary, as well as the cost of posting and hardship allowances you are paid while posted are exempt from taxation in Australia.

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