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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1013125104040

Date of advice: 6 December 2016

Ruling

Subject: Foreign employment income

Question 1

Is your income earned from foreign employment exempt from Australian income tax?

Answer

No

Question 2

Will your income earned from future foreign employment be exempt from Australian income tax?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2016

Year ending 30 June 2017

The scheme commences on:

1 July 2015

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You are employed by Company X in the position of Region C Representative.

Company X has been engaged by the Commonwealth of Australia (CoA) to provide support to the Australian Defence Force (ADF) and the Relevant Department in respect of CoA specific capabilities.

You were issued a deployment order from your Command.

You met a series of pre-deployment requirements, including consent and acknowledgement as a defence civilian.

You departed Australia and travelled to Country A under the deployment order during 2016 and provided continuous foreign service for more than 91 days.

You were based in City B, Country A and you were required to live and work at a related facility location.

Under your employment contract you will be required to complete at least two rotations.

Your employment contract states you are covered under the Manufacturing and Associated Industries and Occupations Award 2010.

Your role is to support CoA agencies with provision of Company Y specific capabilities and Company Z system maintenance support to Utility Vehicles and other vehicle maintenance tasks as required.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 23AG

Income Tax Assessment Act 1936 subsection 23AG(1)

Income Tax Assessment Act 1936 subsection 23AG(2)

Income Tax Assessment Act 1936 subsection 23AG(1AA)

Income Tax Assessment Act 1936 subsection 23AG(7)

Income Tax Assessment Act 1997 subsection 6-5(2)

Defence Force Discipline Act 1982.

Reasons for decision

Summary

Your income from foreign employment is not exempt from income tax in Australia under section 23AG of the ITAA 1936.

Detailed reasoning

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year, unless that income is exempt.

Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

Subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that where a resident taxpayer is engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived will be exempt from tax in Australia.  

'Foreign service' includes service in a foreign country in the capacity as an employee (subsection 23AG(7) of the ITAA 1936). 'Foreign earnings' includes salary and wages income (subsection 23AG(7) of the ITAA 1936).

However, subsection 23AG(1AA) of the ITAA 1936, provides that those foreign earnings will not be exempt under section 23AG unless the continuous period of foreign service is directly attributable to any of the following:

Delivery of Australian official development assistance (ODA) by the person's employer

The term 'Australian official development assistance' is not defined for the purposes of section 23AG of the ITAA 1936.

However, the Explanatory Memorandum (EM) which accompanied Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009 introducing paragraph 23AG(1AA)(a) of the ITAA 1936 provides guidance on the meaning of the phrase.

The relevant paragraphs are below:

The EM reveals that paragraph 23AG(1AA)(a) of the ITAA 1936 is intended to restrict the section 23AG of the ITAA 1936 exemption to foreign earnings derived by other employees delivering ODA on behalf of their employers who in turn have been contracted by the Australian Government to assist in the delivery of ODA under the aid program that is administered by AusAID or DFAT.

Accordingly, for non-APS employees to be eligible for exemption pursuant to paragraph 23AG(1AA)(a) of the ITAA 1936, their employer must have been contracted directly by the Australian Government to assist in the delivery of ODA under the overseas aid program that is administered by AusAID or DFAT.

Company X has not been contracted directly by DFAT or the Australian Government to assist in the delivery of Australian ODA. Rather, Company X has been contracted by the Australian Government to provide support for specific capabilities.

You are not an APS employee. You are providing vehicle and maintenance services on behalf of Company X (which of itself is not Australian ODA) to CoA agencies that use the vehicles for various tasks and not specifically to deliver ODA.

Accordingly you would not be entitled to claim an exemption to Australian income tax under paragraph 23AG(1AA)(a) of the ITAA 1936 as neither you nor Company X are delivering Australian ODA.

Deployment outside Australia as a member of a disciplined force

Paragraphs 9 to 13 of Taxation Ruling TR 2013/7 Income tax: foreign employment income: interpretation of subsection 23AG(1AA) of the Income Tax Assessment Act 1936 considers the meaning of 'disciplined force', 'deployed' and 'member' in paragraph 23AG(1AA)(d) of the ITAA 1936.

Example 13 of TR 2013/7 is similar to your circumstances.

Although you may be subject to a strict code of conduct, and were issued deployment orders from your Command you are not a member of the ADF, AFP or State of Territory forces who has undertaken the oath or affirmation required to perform operational duties. You are also not an employee of the APS and therefore not a member of a disciplined force.

Accordingly you would not be entitled to claim an exemption to Australian income tax under paragraph 23AG(1AA)(d) of the ITAA 1936.


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