Edited version of private ruling

Authorisation Number: 1011677413941

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Ruling

Subject: Overseas Income

Is the income you derived while deployed overseas assessable in Australia?

No.

This ruling applies for the following period

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commenced on

1 July 2009

The scheme that is the subject of the ruling

You are a resident of Australia for taxation purposes and will remain so while overseas.

You are a member of the Australian deference forces working in country A on a three year posting.

Your deployment commenced in 2009 and is expected to cease in 2011.

You will be working as part of the Australian Defence staff supporting the Defence Cooperation Program between Australia and country A.

You do not expect to remain in country A beyond your current employment contract.

While in country A you will receive the following allowances:- Attraction allowance, Hardship allowance and Overseas living allowance.

You will accrue 30 days per year recreation leave per year. It is likely that you will expend this recreation leave in countries other than country A primarily Australia.

You will not perform any work duties in Australia whilst on recreation leave.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 23AG.

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

Income Tax Assessment Act 1936 Subsection 23AG(2).

Income Tax Assessment Act 1936 Subsection 23AG(6).

Income Tax Assessment Act 1936 Subsection 23AG(7).

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

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

Reasons for decision

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.

However, any amount that is exempt income is not included in a taxpayer's assessable income. Section 23AG of the ITAA 1936 outlines the conditions that must be met before overseas employment income is considered to be exempt 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.

The exemption under subsection 23AG(1) of the ITAA 1936 does not apply if the income is exempt from tax in the foreign country only because of any of the reasons listed in subsection 23AG(2) of ITAA 1936. One of these reasons is if the income is exempt from tax in country A because of the tax treaty.

Australia has a tax treaty with country A (the Agreement) which operates to avoid the double taxation of income received by Australian and country A residents.

An article of the Agreement provides that remuneration paid by Australia to any individual in respect of services rendered in the discharge of governmental functions shall be taxable only in Australia.

However, your salary and allowances from your services in country A will be exempt from taxation due to the operation of the Australian Treaty between the governments of Australia and country A. As this exemption in the treaty does not fall under any of the exemption categories in subsection 23AG(2) of ITAA 1936, your foreign earnings satisfy the conditions for exemption under section 23AG of ITAA 1936.

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 Australian official development assistance by the taxpayer's employer (generally provided by AusAID or the Department of Foreign Affairs and Trade)

· the activities of the taxpayer's employer in operating a public fund covered by the deductible gift recipient categories overseas aid fund and developed country disaster relief fund

· the activities of the taxpayer's employer whether they are a charitable institution or religious institution which is income tax exempt because they are a prescribed institution located outside Australia or pursuing objectives principally outside Australia

· the taxpayer's deployment outside Australia as a member of a disciplined force of Australia (generally considered to be the Australian Defence Force or Australian Federal Police), or

· an activity of a kind specified in the regulations.

Accordingly, the salary and allowances you receive while employed in country A will be exempt from Australian income tax under section 23AG of the ITAA 1936 as the income received is as a result of a deployment outside Australia by a disciplined force and there is a tax treaty with country A that avoids the double taxation of income.