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Edited version of your written advice

Authorisation Number: 1051363165725

Date of advice: 20 April 2018

Ruling

Subject: Exempt foreign employment income – 23AG

Question

Is your salary income derived while you are working overseas exempt from income tax under section 23AG of Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2018

Year ended 30 June 2019

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You are an Australian resident for income tax purposes.

You are employed by an Australian organisation.

Your employer is a non-government organisation that provides emergency assistance to communities devastated by conflict or major natural disasters by selecting, training and providing competent and effective personnel to humanitarian relief programs worldwide.

Your employer is funded by the Australian Government under the International Health Regulations (2005) ATNIF 12 to provide Australian official development assistance (ODA).

You will be deployed for a period of 131 days

Your income is not exempt from taxation in the foreign country for any of the reasons mentioned in subsection 23AG(2) of the ITAA 1936.

The foreign country taxes employment income under its domestic law.

There is no tax treaty between Australia and the foreign country.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 23AG

Reasons for decision

Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings of an Australian resident derived during a continuous period of foreign service of not less than 91 days employment in foreign country are exempt from income tax in Australia.

Foreign earnings includes income consisting of salary, wages, bonuses or allowances (subsection 23AG(7) of the ITAA 1936).

To qualify for the exemption the foreign earnings must be derived from the foreign service. That does not mean that the foreign earnings need to be derived at the time of engaging in foreign service. The important test is that the foreign earnings, when derived, need to be derived as result of the undertaking of that foreign service.

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:

In your case, you were deployed to a foreign country by your employer to provide ODA.

As your deployment is directly attributable to the delivery of Australian ODA, you satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936.

As you receive a salary from your foreign employment, this salary is considered to be derived from your foreign service.

Therefore, your salary is foreign earnings from foreign service for the purposes of subsection 23AG(1) of the ITAA 1936.

Subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG(1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the following.

There is no tax treaty between Australia and the foreign country. Therefore, paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936 will not apply.

As the laws of the foreign country provide for the imposition of income tax and do not generally exempt employment income from income tax, paragraphs 23AG(2)(c) and (d) of the ITAA 1936 will not apply.

None of the other reasons in subsection 23AG(2) of the ITAA 1936 apply to your situation.

In your case, you are engaged in employment overseas for a continuous period of not less than 91 days, and none of the reasons listed in subsection 23AG(2) of the ITAA 1936 apply in your situation.

Consequently, the salary you earn during your deployment to the foreign country are exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936.


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