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Edited version of private advice

Authorisation Number: 1052272216523

Date of advice: 15 July 2024

Ruling

Subject: International income

Question

Is your income derived from your deployment in a foreign country exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No.

This ruling applies for the following periods:

Year Ended 30 June 20XX

Year Ended 30 June 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

You are an Australian resident.

You were employed by employer A as an employee.

Employer A is a private company, which contracts out to different organisations including the Australian Defence Force (ADF) and Department of Foreign Affairs and Trade's (DFAT).

From XX XXXX 20XX to XX XXXX 20XX, you were engaged in operation A with the ADF.

Your employment contract and job description both list employer A as the employer and the contract lists ADF as 'customer'.

You were required to work in country A for operation A.

Operation A is the ADF's contribution to DFAT's effort to bring peace and stability to country A.

Employer A were embedded staff within operation A, and would render assistance to operation A, Australian Federal Police, and DFAT.

Your team worked closely with country A's Government agencies and the DFAT to get the supplies out to the provinces.

The ADF had to operate the DFAT's humanitarian stores warehouse and undertake an airlift operation to transport supplies to the provinces of country A.

The Australian Governments involvement was coordinated by DFAT, and the ADF contribution was conducted collaboratively and tailored to the needs of the country A's Government.

Your role was to work with the ADF as an officer.

You did not take any breaks during your service.

You returned to Australia upon completion of your service.

You received a salary and four allowances as part of your remuneration package,

The four allowances were for incidentals, shift, location and food.

You did not pay tax on your income in country A due to the agreement between Australia and country A.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1936 section 23AG

Income Tax Assessment Act 1997 section 11-15

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 subsection 6-15(2)

Income Tax Assessment Act 1997 section 6-20

Reasons for decision

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

Ordinary income includes salary and wages and subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income, then it is not assessable income. Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23AG of the ITAA 1936 which deals with exempt foreign employment income.

Subsection 23AG(1) of the ITAA 1936 states that any foreign earnings derived by an Australian resident who has been engaged in foreign service for a continuous period of not less than 91 days are exempt from income tax in Australia subject to the qualifying provisions of section 23AG. Foreign service includes being deployed outside of Australia as a member of a disciplined force, for example, the Australian Defence Force (ADF).

Subsection 23AG(7) of the ITAA 1936 provides that foreign service means service in a foreign country as the holder of an office or in the capacity of an employee. Australia is not a foreign country for the purposes of the application of section 23AG of the ITAA 1936. Therefore, service undertaken in Australia cannot be regarded as foreign service.

To be entitled to an exemption under section 23AG of the ITAA 1936, a taxpayer must meet three requirements:

•         The requirement of subsection 23AG(1) must be satisfied;

•         The taxpayers' continuous foreign service must be directly attributable to one of the listed reasons in subsection 23AG(1AA); and

•         The taxpayers' foreign earnings must either be not exempt or exempt from income tax in the foreign country for a reason other than those listed in subsection 23AG(2).

Taxation Ruling TR 2013/7 Income tax: foreign employment income: interpretation of subsection 23AG(1AA) of the Income Tax Assessment Act 1936, provides the Commissioner's views on the interpretation of aspects of subsection 23AG(1AA) of the ITAA 1936. The ruling specifically considers:

Paragraphs 5 and 6 of TR 2013/7, discusses what is the 'delivery of Australian official development assistance by the person's employer' within the meaning of paragraph 23AG(1AA)(a).

5. 'Australian official development assistance' refers to activities or programs in respect of which the funding has been (or would properly be) classified, in whole or in part, by the Australian Government as official development assistance (ODA) for the purposes of reporting to the Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee (DAC). The Australian Government bases its classification of funding as Australian ODA solely on the directives of the OECD DAC.

6. In the context of paragraph 23AG(1AA)(a) 'delivery of Australian ODA' means the act of providing, giving or sending forth the relevant Australian ODA by the employer. The 'delivery of Australian ODA by the person's employer' is the doing of the activities which are carrying out or sending forth the Australian ODA. The term 'delivery' includes activities which are necessary for or facilitate carrying out the Australian ODA. Therefore, an employer is delivering Australian ODA for the purposes of section 23AG where they are undertaking activities necessary for or which facilitate the carrying out of Australian ODA even though the expenditure on those particular activities may not be classified as Australian ODA by the Australian Government. Delivery of Australian ODA does not necessarily require an employer to undertake all activities associated with the Australian ODA.

Paragraphs 9, 11 and 12 of TR 2013/7, discusses what is a 'disciplined force' and who is a 'member' of a disciplined force within the meaning of paragraph 23AG(1AA)(d). The paragraphs state:

9. The phrase 'disciplined force' in paragraph 23AG(1AA)(d) refers to the Australian Defence Force (ADF), Australian Federal Police (AFP) and the State and Territory police forces.

11. Any person subject to the strict code of conduct governing the above forces is a 'member' for the purposes of paragraph 23AG(1AA)(d). Employees of the ADF or AFP, State or Territory police forces who have undertaken the oath or affirmation required to perform operational duties are 'members'.

12. The term member includes employees referred to in paragraph 11 of this Ruling that are part of an international peacekeeping force in their capacity as an ADF, AFP or State or Territory police force member.

Application to your circumstances

You have satisfied the requirements of subsection 23AG(1) of ITAA 1936. You have met these requirements because you are an Australian resident, who has derived foreign income as an employee of an international organisation for continuous period of not less than 91 days. You however have not satisfied the requirement that your foreign service be directly attributable to one of the listed reasons in subsection 23AG(1AA).

You have not satisfied paragraph 23AG(1AA)(a) of the ITAA 1936, because your employer has a contract with ADF and not the Department of Foreign Affairs and Trade (DFAT). To be eligible under this subsection, International SOS must have been contracted to DFAT. The following facts support your employer's connection with ADF:

•         Your employment contract and job description both list employer A as the employer and the contract lists ADF as 'customer'.

•         Operation A is the ADF's contribution to DFAT's effort to bring peace and stability in country A.

•         Employer A were the staff embedded within operation A, and would render assistance to operation A, Australian Federal Police, and DFAT.

•         Your team worked closely with country A's Government agencies and the DFAT to get the supplies out to the provinces.

•         The ADF had to operate the DFAT's humanitarian stores warehouse and undertake an airlift operation to transport critical supplies to the provinces of country A.

•         The Australian Governments involvement was coordinated by DFAT, and the ADF contribution was conducted collaboratively and tailored to the needs of the country A Government.

•         Your role was to work with the ADF as an officer.

You have not satisfied paragraph 23AG(1AA)(d) of the ITAA 1936. This is because your employer is a contractor to the ADF. The employment contract and job description both list organisation A as the employer and the contract lists ADF as 'customer'. You are therefore not a member of a disciplined force.

You have not provided any further facts to that show your foreign service is directly attributable to one of the other listed reasons in subsection 23AG(1AA) of the ITAA 1936. You have not satisfied the requirement that your foreign service be directly attributable to one of the listed reasons in subsection 23AG(1AA) and therefore your foreign income derived in the XXXX for the period XX XXXX 20XX to XX XXXX 20XX is not exempt under this provision.

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