Edited version of your private ruling

Authorisation Number: 1012427777922

Ruling

Subject: Foreign Income Exemption

Questions and answers:

1. Are your foreign earnings exempt from taxation under Section 23AG of the Income Tax Assessment Act 1936 for the period you were engaged as an employee?

Yes.

2. Are your foreign earnings exempt from taxation under Section 23AF of the Income Tax Assessment Act 1936 for the period you were engaged as a long-term contractor?

No.

This ruling applies for the following periods:

Year ended 30 June 2012.

Year ended 30 June 2013.

The scheme commenced on:

1 July 2011.

Relevant facts:

You were engaged in foreign service for greater than 91 days.

You were engaged by a Australian Government Department who are supporters of a fellow Australian agency.

Although you have had several employers during your period of foreign service, they were for the same project.

There is an agreement between Australia and the overseas country that exempts the income from taxation in the overseas country.

The overseas country normally taxes salary and wage income.

There is taxation treaty between the Australian Government and the overseas country.

You were engaged as an employee and paid directly by a private company.

You were engaged as a long-term contractor by a private company and paid directly from as by your employer.

Relevant legislative provisions:

Income Tax Assessment Act 1936 Section 23AG

Income Tax Assessment Act 1936 Section 23AF

Reasons for decision

Engaged as an employee:

Subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that foreign earnings are exempt from income tax where all of the following requirements are satisfied:

· you are a resident of Australia and a natural person,

· you are engaged in foreign service,

· the foreign service is for a continuous period of at least 91 days,

· you derive foreign earnings from that foreign service,

· the foreign service is directly attributable to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936, and

· the foreign earnings are not exempt from income tax in the foreign country only because of one of the reasons listed in subsection 23AG(2) of the ITAA 1936.

Subsection 23AG(2) of the ITAA 1936 provides that no exemption is available where an amount of foreign earnings derived 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 (paragraphs 23AG(2)(a) and (b));

· a law of that foreign country which 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 (paragraphs 23AG(2)(c) and (d)); and

· a law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations (paragraphs 23AG(2)(e), (f) and (g)).

Australia has entered into a tax treaty with the overseas country. The treaty provides that the income tax liability of Australian personnel, including X employees deployed overseas, shall be borne by the overseas country. This exempts the X employees from paying overseas income tax on salaries and allowances derived while deployed in overseas. Therefore, subsection 23AG(2) will not operate to deny your 'foreign earnings' exemption under subsection 23AG(1) of the ITAA 1936.

You were engaged as an employee overseas for more than 91 days continuous service. You will be exempt under 23AG of the ITAA 1936 for the period you are engaged as an employee. As per 23AG of the ITAA 1936 to be eligible you must be working as an employee as an authority of the Commonwealth of Australia.

Engaged as a contractor:

The periods worked as a contractor will not be exempt under 23AG of the ITAA 1936 as per the definition of foreign service, which means service in a foreign country as the holder of an office or in the capacity of an employee. However, 23AF of the ITAA 1936 needs to be considered, for contractors.

Subsection 23AF(1) of the Income Tax assessment Act 1936 (ITAA 1936) provides that where a taxpayer has engaged in qualifying service on an approved project for a continuous period of 91 days or more, then any income that is derived by a taxpayer in relation to the qualifying service will be exempt from tax. An approved project will be approved by the Trade Minister or a delegate of the Trade Minister, and will be allocated an official project number.

As your project does not have an official project number, it is not an approved project. You are not eligible for exemption under 23AF of the ITAA 1936.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).