Edited version of private ruling

Authorisation Number: 1011648559523

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Ruling

Subject: Foreign employment income

1. Is your income derived from employment in country X with a Company exempt from tax in Australia?

No.

2. Is your income derived from employment in country X with a Company exempt from tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)?

No.

3. Is your income derived from employment in country X with a Company exempt from tax in Australia under section 23AC of the ITAA 1936?

No.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ending 30 June 2011

The scheme commences on:

1 July 2009

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 taxation purposes.

You are working in country X alongside the Defence Forces as part of the United Nations (UN) operations in support of the International Organisation.

You are employed by Company, an independent but wholly owned company of the Head Company registered in country Z.

The Company operates under the North Atlantic Treaty Organisation (NATO) in support of NATO forces.

NATO operates in country X under the UN Security Council resolution, leading the International Organisation.

The Australian government supports and works closely with NATO and the other allies as part of International Organisation.

You work in country X for a period of not less than 91 days.

The Department of Foreign Affairs and Trade has advised that the International Organisation is not a subsidiary body of the UN and does not qualify as an international or overseas organisation to which the International Organisations (Privileges & Immunities) Act 1963 (IO(P&I)A) applies.

You are not a member of the Australian Defence Force (ADF).

Australia does not have a tax treaty with country X.

Relevant legislative provisions

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

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

Section 6-20 Income Tax Assessment Act 1997

Subsection 11-15 Income Tax Assessment Act 1997

Section 23AG Income Tax Assessment Act 1936

Subsection 23AG(1) Income Tax Assessment Act 1936

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

Section 23AC Income Tax Assessment Act 1936

Section 23AD Income Tax Assessment Act 1936

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident will include ordinary income derived from all sources, whether in or out of Australia, during the income year.

Income from employment is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

However, subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.

Section 6-20 of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law.

Privileges and immunities relating to international organisations

The International Organisations (Privileges & Immunities) Act 1963 (IO(P&I)A) is a Commonwealth law under which an international organisation, and persons engaged by it, may be accorded certain privileges and immunities including an exemption from tax.

Subsection 5(1) of the IO(P&I)A provides that the regulations may declare an organisation to be an organisation to which this Act applies.

Paragraph 3(1)(b) of the IO(P&I)A defines the term an 'international organisation to which this Act applies' to mean an organisation that is declared by the regulations to be an international organisation to which this Act applies, and includes a body established by such an organisation.

The UN is an international organisation listed in the regulations of the IO(P&I)A. DFAT has advised that the International Organisation is not a subsidiary body of the UN. Therefore, the International Organisation is not is an international organisation to which IO(P&I)A applies.

Consequently, the income you derived from your employment in country X under the International Organisation is not exempt under section 6-20 of the ITAA 1997 and it is assessable under subsection 6-5(2) of the ITAA 1997.

Exemption under section 23AG of the ITAA 1936

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 overseas employment income.

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 a foreign country are exempt from tax in Australia.

Section 23AG of the ITAA 1936 has been amended so that foreign employment income derived by Australian residents will only be exempt in certain circumstances. These amendments are effective from 1 July 2009.

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:

· the delivery of Australia's overseas aid program by the individual's employer

· the activities of the individual's employer in operating a developing country relief fund or a public disaster relief fund

· the activities of the individual's employer being a prescribed institution that is exempt from Australian tax, or

· the individual's deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force.

In your case, you are employed by a Company to work in country X. Your role is not directly attributable to the activities mentioned above. You are also not a member of a disciplined force of Australia.

As your foreign service is not directly attributable to any of the above conditions for exemption under subsection 23AG(1AA) of the ITAA 1936, your income from country X is not exempt from tax in Australia under subsection 23AG(1) of the ITAA 1936.

Exemption under section 23AC of the ITAA 1936

An exemption is available under section 23AC of the ITAA 1936 in respect of pay and allowances earned by members of the Defence Force during certain periods of defined operational service. In your private ruling application you referred to section 23AC of the ITAA 1936. This section has effectively been replaced by section 23AD of the ITAA 1936 for deployments after 9 June 1993.

For an exemption under section 23AD of the ITAA 1936 to apply, the ADF member must have a certificate from the Chief of the Defence Force stating that they are on eligible duty with a specified organisation in a specified area.

Based on the information you have provided to us, you are neither a member of the Defence Force, nor have you received the relevant certificate from the Chief of the Defence Force entitling you to the exemption. You are therefore not exempt under the provisions of section 23AD of the ITAA 1936.

Conclusion

The income you derived from the International Organisation is not exempt from tax in Australia under the provisions of the IO(P&I)A, subsection 23AG(1) of the ITAA 1936 or section 23AC of the ITAA 1936.

Accordingly, the income you derived from the International Organisation is assessable under subsection 6-5(2) of the ITAA 1997.