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Edited version of your written advice
Authorisation Number: 1013033501504
Date of advice: 14 June 2016
Ruling
Subject: Foreign Income
Question 1
Is your income derived whilst employed overseas exempt from Australian income tax under section 23AG of the Income Tax Assessment Act 1936?
Answer
Yes
This ruling applies for the following periods:
Year ended 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commences on:
1 July 2014
Relevant facts and circumstances
You are an Australia resident for taxation purposes.
You are employed as a Director in Country A and carry out duties in regard to Australia Awards.
The Australia Awards are an international scholarships Australian Aid program funded by the Australian government.
You are employed by Company X who has entered into a head contract with the relevant Department to implement the Australia Awards Country A.
The contract states that the 'client' is Y.
You will be deployed for longer than 91 days.
There is a Memorandum of Understanding (MOU) between the governments of Australia and Country A on Technical Cooperation for Development.
Paragraph XI of the MOU grants exemption from income taxes in Country A on salaries and allowances in respect of Australian project personnel who deliver Australian official development assistance to Country A.
You are exempt from paying taxes on your employment income in Country A under the terms of the MOU.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 23AG.
Reasons for decision
Section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) provides that where you are working overseas and earning foreign employment income, the income is exempt from income tax in Australia if all of the following applies:
• you are an Australian resident;
• you are engaged in continuous foreign service as an employee for 91 days or more;
• your foreign service is directly attributable to the delivery of Australian official development assistance by your employer; and
• you are not excluded from the exemption by specific conditions listed in the law.
In your case, you are an Australian resident engaged in continuous foreign service as an employee for more than 91 days and we accept that your foreign service is directly attributable to the delivery of Australian official development assistance by your employer in Country A.
Subsection 23AG(2) of the ITAA 1936 provides that no exemption is available in circumstances 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 diplomatic or consular privileges and immunities, or privileges and immunities of persons connected with international organisations (paragraphs 23AG(2)(e), (f) and (g)).
If your foreign employment income is exempt for a reason other than, or in addition to, the conditions listed above, then it will still be exempt from taxation in Australia.
The Governments of Australia and Country A have concluded a MOU covering Technical Cooperation for Development. Paragraph XI of the MOU exempts Australian Project Personnel from taxation in Country A. Australian Project Personnel is defined in the MOU as Australian nationals or permanent residents who are engaged by the Government of Australia or by an Australian contractor to work in Country A on a Project under the memorandum and whose salaries are paid by the Government of Australia or by an Australian contractor.
Therefore, the income you derive from your employment in the foreign country is exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936.
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