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Edited version of your written advice
Authorisation Number: 1051276742872
Date of advice: 1 September 2017
Ruling
Subject: International - salary - 23AG
Questions and answers
Is the foreign employment income you derived from working in overseas exempt income in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)?
No.
This ruling applies for the following period:
Year ended 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
The scheme commenced on:
DDMMYY
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You are an Australian resident for income tax purposes.
You have been appointed to a position with a government agency overseas.
Your appointment overseas is for two years.
You are on a leave of absence from your employer in Australia for a period of two years.
You remain subject to your Australian employers professional standards as an ongoing employee.
Your salary and entitlements will be paid by the Government of Australia for the two year period you are overseas.
You will carry out Official Development Assistance (ODA) overseas.
There is a Memorandum of understanding (MOU) between the governments of Australia and Country Y which exempts your salary from tax in Country Y.
Relevant legislative provisions:
Income Tax Assessment Act 1936 Section 23AG
Reasons for decision
Subsection 23AG (1AA) of the ITAA 1936 provides that foreign earnings are not exempt from tax unless the continuous period of Foreign Service is directly attributable to any of the following:
● Delivery of Australian official development assistance by your employer (except if that employer is an Australian government agency (within the meaning of the Income Tax Assessment Act 1997)).
● 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).
● 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.
● Deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force.
Deployed as a member of a disciplined force
Taxation Ruling 2013/7 (TR 2013/7) states:
10. A person is ‘deployed’ within the meaning of paragraph 23AG(1AA)(d) if, and only if, they have been directed to perform duties overseas by the Commonwealth, a State or a Territory or an authority thereof in their capacity as a member of a disciplined force. This includes the member being sent overseas to undertake or participate in study or training activities in their capacity as a member of the relevant disciplined force.
You have not been directed by the Commonwealth or your employer to perform the duties overseas. Neither will you perform those duties in your capacity as a member of your Australian employer.
The appointment letter makes it clear that you were granted extended leave of absence without pay by your Australian employer to take up the appointment overseas. That appointment is granted by the Government of the overseas country. Your Australian employer has granted you leave to allow you to accept the appointment.
While you remain employed by your Australian employer and are subject to the Australian employer Professional Standards, you have not been deployed by your Australian employer.
Therefore, for the remuneration to be exempt your foreign service must be directly attributable to the delivery of Australian official development assistance by your employer accept if that employer is a government agency within the meaning of the Income Tax assessment Act 1997.
It is clear that the employer for the purposes of your ‘foreign service’ is the Government of the overseas country. The fact that you are being paid in Australia by your Australian employer, in relation to your foreign service while on leave of absence from your Australian employment may be explained in terms of ‘the interests of the Commonwealth’.
The subsidy of your appointment by the Australian government does not mean that your foreign earnings in fulfilling your duties including the Specific Tasks, are directly attributable to the delivery of Australian official development assistance (ODA) by your employer, the government of the overseas country. On the contrary, there is no basis for holding that the government of Country Y is delivering ODA in any form due to having appointed you to the position. The source of the subsidy does not alter this conclusion.
The condition in paragraph 23AG(1AA)(a) of the ITAA 1936 is not framed in terms of the source of funding of foreign earnings but their being directly attributable to the delivery of ODA by the individual’s employer. TR 2013/7 states (at paragraph 7): ‘For the purposes of paragraphs 23AG(1AA)(a) to (c) an employee's foreign service is “directly attributable to” the activities of the employer where the requisite activities of the employer are the immediate and controlling reason why the employee is engaged in that foreign service.’ It states that the delivery of Australian ODA means ‘the act of providing, giving or sending forth the relevant Australian ODA by the employer’ (paragraph 6).
As the government of Country Y is not engaged in the delivery of Australian ODA in appointing or employing you , it must be concluded that paragraph 23AG(1AA)(a) of the ITAA 1936 is not satisfied.
As a consequence, your foreign earnings are not exempt from Australian income tax under subsection 23AG(1) of the ITAA 1936.
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