Edited version of private ruling

Authorisation Number: 1011684371672

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Ruling

Subject: Foreign employment income

Question

Is the foreign employment income you earned in Country X in the income year assessable in Australia?

Answer

No

This ruling applies for the following period

Year ending 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts and circumstances

You are an Australian resident for income tax purposes.

You were employed by a company in Country X, serving the interests of NATO and an international security assistance force.

You were employed for a period of not less than 91 days.

The tax laws of Country X provide for the imposition of income tax on employment income and do not generally exempt such income from tax.

Your employment income was exempt from income tax in Country X due to an agreement between the international security assistance force and the Government of Country X.

There is no tax treaty between Australia and Country X.

Relevant legislative provisions

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

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

Income Tax Assessment Act 1997 Section 11-15

Income Tax Assessment Act 1936 Section 23AG

Income Tax Assessment Act 1936 Subsection 23AG(1)

Income Tax Assessment Act 1936 Subsection 23AG(7)

Income Tax Assessment Act 1936 Subsection 23AG(6)

Income Tax Assessment Act 1936 Subsection 23AG(2)

Income Tax Assessment Act 1936 Paragraph 23AG(2)(a)

Income Tax Assessment Act 1936 Paragraph 23AG(2)(b)

Reasons for decision

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

Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income it is not included in 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 Income Tax Assessment Act 1936 (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.

Foreign earnings include income consisting of salary, wages, bonuses or allowances (subsection 23AG(7) 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 reasons listed in that subsection.

One of the reasons listed is where the income is exempt in the foreign country because of a tax treaty (paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936).

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

As the laws of Country X 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 also not apply.

Your employment income was exempt from income tax in Country X due to an agreement between an international security assistance force and the Government of Country X.

This is not one of the reasons listed in subsection 23AG(2) of the ITAA 1936.

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

You satisfy the conditions for exemption under section 23AG of the ITAA 1936.

Consequently, the foreign employment income you earned in Country X in the income year is exempt from Australian income tax under subsection 23AG(1) of the ITAA 1936.

Accordingly, the foreign employment income you received from Country X in the income year is not assessable in Australia under subsection 6-5(2) of the ITAA 1997.  

Note

Foreign earnings exempt under section 23AG of the ITAA 1936 are taken into account in calculating the tax payable on other income derived by a taxpayer. This method of calculation referred to as exemption with progression prevents the exempt income from reducing the Australian tax payable on the other income. This income needs to be included as exempt foreign employment income in your Australian tax return.