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This edited version has been archived due to the length of time since original publication.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 private advice

Authorisation Number: 1051535372970

Date of advice: 4 July 2019

Ruling

Subject: Exempt foreign income

Question

Is the income earned in Country X exempt under section 23AG?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 2019

Year ending 30 June 2020

Year ending 30 June 2021

The scheme commences on:

1 July 2018

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You are a contributing member of the PSS Commonwealth Superannuation Scheme.

You are currently on leave without pay from your employer to accompany your spouse on an overseas posting to Country X

Your contract states that you are employed as a locally engaged staff.

You are not paying tax in Country X.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 23AG

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

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

Detailed reasoning

Assessable income - general

As a general rule, and under the provisions of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), the assessable income of an Australian resident taxpayer includes all the ordinary income they earn from all sources, in or out of Australia in an income year.

Income in the form of salary, wages and allowances are all types of ordinary income.

Although a payment may be considered ordinary income and will generally be assessable under the provisions of section 6-5 of the ITAA 1997, there are some instances where ordinary income may be excluded from an individual's assessable income in Australia. This will be the case for example if a specific provision of the tax law makes the income exempt from taxation in Australia.

Exemption from taxation under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)

Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings are exempt from income tax in Australia 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.

·        From 1 July 2009 onwards, the foreign service is directly attributable to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936.

·        The foreign earnings must not be exempt in the foreign country only for one or more of the reasons covered by subsection 23AG(2) of the ITAA 1936.

Application to your circumstances

Australian residency

You have stated you are an Australian resident by virtue of the fact you are a contributing member of thePSS Commonwealth Superannuation Scheme. Therefore you will remain an Australian resident no matter how long you are in Country X for.

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

One of the activities mentioned in subsection 23AG(1AA) is the delivery of Australian official development assistance by the person's employer. However an exception to this is if the employer in question is an Australian government agency (within the meaning of the ITAA 1997.)

You are employed by an Australian Government Agency and therefore your activities will not be considered to be directly attributable to the delivery of Australian ODA by your employer.

Deployed by a disciplined force

Another qualifying activity (subsection 23AG(1AA)(d)) is that the foreign service is directly attributable to the person's deployment outside Australia as a member of a disciplined force by either:

a)     The Commonwealth, a State or a Territory; or

b)     An authority of the Commonwealth, a State or a Territory.

Paragraph 10 of Taxation Ruling TR 2013/7 Income tax: foreign employment income: interpretation of subsection 23AG(1AA) of the Income Tax Assessment Act 1936 states that 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.

Analysing your circumstances, this section does not apply to you.

As none of the other activities in section 23AG(1AA) apply to you, the foreign earnings you derive from your work in Country X are not exempt under section 23AG.

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