Edited version of private ruling

Authorisation Number: 1011721862914

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Ruling

Subject: Foreign employment income

Question 1

Are you an Australian resident for taxation purposes?

Answer

Yes

Question 2

Is the income you receive from your employment with a charitable organisation in country X exempt from tax in Australia?

Answer

No

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced 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 a citizen of Australia.

You left Australia in the 2007-08 income year.

You hold a working visa for country X.

During the 2009-10 income year, you were on unpaid leave from your employment with the Commonwealth Government of Australia and subsequently on long service leave.

You are living in a rented accommodation in country X.

You own a home in Australia and it has not been rented out while you are overseas.

You are a member of the Public Sector Superannuation Scheme (PSS).

You commenced employment with the charitable organisation in the 2009-10 income year. The duration of your employment will be three years with a renewal for two years or any other duration that is mutually agreed upon after the first three year period consistent with the working visa requirements.

The charitable organisation is a non- profit organisation, based in country X which is registered as an exempted charitable organisation in country X's legislation.

The charitable organisation is primarily funded by grants from government donors (including the Australian Government Agency for International Development (AusAID)) and United Nations agencies.

You submitted the details of AusAID's involvement with the charitable organisation. .

Your duties include the following:

· coordinate the agendas of Board meetings and submit the minutes of the Board meetings for approval by other Board members.

· Under the direction and guidance of the Board of Directors, you are in charge of the charitable organisation's operations and will be joined by the President and the Treasurer working with you to form an internal management body.

Your employer does not operate a public fund declared by the Treasurer (of Australia) to be developing country relief fund covered by item 9.1.1 of the table in subsection 30-80(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

The charitable organisation is not listed in the Australian Business register and is not a prescribed institution in the Income Tax Assessment Regulations 1997 for the purposes of subsection 50-50(c) or (d) of the ITAA 1997.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Subsection 23AG(1)

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

Income Tax Assessment Act 1936 Paragraph 23AG(1AA)(a)

Income Tax Assessment Act 1936 Paragraph 23AG(1AA)(b)

Income Tax Assessment Act 1936 Paragraph 23AG(1AA)(c)

Income Tax Assessment Act 1936 Paragraph 23AG(1AA)(d)

Income Tax Assessment Act 1936 Paragraph 23AG(1AA)(e)

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

Income Tax Assessment Act 1997 Section 11-15

Income Tax Assessment Act 1997 Section 50-50

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.

The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

Residency

The Commonwealth superannuation fund test for residency covers Commonwealth government employees, as members of the Commonwealth superannuation funds (as well as their spouses and children under 16 years of age).

A person is a 'resident' under this test if they are:

· a member of the superannuation scheme established by deed under the Superannuation Act 1990 (SA 1990), or

· an eligible employee for the purposes of the Superannuation Act 1976, or

· the spouse, or a child under 16, of a person covered by either of the above.

The SA 1990 established the PSS, and the Superannuation Act 1976 established a scheme called the Commonwealth Superannuation Scheme (CSS).

You have advised that you are a member of the PSS, but that you are on unpaid leave and long service leave.

To determine whether you are a resident under the Commonwealth superannuation fund test, for the period you are deriving income in country X, it is necessary to determine whether you are a member of the superannuation scheme (PSS) for the purposes of the SA 1990 for that period.

A member of the superannuation scheme is defined in section 6(1) of the SA 1990 to mean a person who is a permanent employee.

You are a Commonwealth Government employee who is currently on leave without pay and long service leave. Although you are on leave, you are considered to be a member of the PSS as you are still a permanent employee.

As you are a member of the PSS you satisfy the Superannuation test. Therefore, you are considered to be an Australian resident for tax purposes during your stay in country X.

Foreign employment income

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.

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 Australian official development assistance 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, and

· an activity of a kind specified in regulations.

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

The term 'Australian official development assistance' is not defined for the purposes of section 23AG of the ITAA 1936. However, the Explanatory Memorandum (EM) which accompanied Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009 introducing subsection 23AG(1AA) of the ITAA 1936 provides guidance on the meaning of the phrase. The relevant paragraphs are below:

Australian official development assistance

1.19 Australian official development assistance (ODA) is assistance delivered through the Australian Government's overseas aid program, as administered by the Department of Foreign Affairs and Trade and/or the Australian Agency for International Development (AusAID). Australian ODA aims to reduce poverty and achieve sustainable development in developing countries, in line with Australia's national interest.

1.20 In addition to providing Australian ODA directly, AusAID also competitively contracts aid work to Australian and international entities. Thus, in practice, individuals involved in the delivery of Australian ODA can include both Australian Public Service (APS) employees and non-APS employees.

1.21 For the purposes of subsection 23AG(1AA) the delivery of Australian ODA must be undertaken by the person's employer, which includes AusAID and an entity contracted by AusAID to assist in the delivery of Australian ODA.

Example 1.1

Colin is an APS employee employed by AusAID. He is posted to the Cook Islands, for 120 continuous days, as a project advisor on an Australian ODA project aimed at improving the quality of early childhood education.

Colin's foreign service is directly attributable to the delivery of Australian ODA by his employer and his foreign earnings are therefore eligible for exemption pursuant to section 23AG, subject to the conditions contained in subsection 23AG(2).

Example 1.2

Robert is an APS employee employed by the Commonwealth Department of Climate Change. He is posted to Tokelau for 150 continuous days, to work on a project aimed at minimising the impacts of rising sea levels in Tokelau.

Robert is not an AusAID employee but the project is classified as Australian ODA by AusAID. Robert's foreign service is directly attributable to the delivery of Australian ODA by his employer and his foreign earnings are therefore eligible for exemption pursuant to section 23AG, subject to the conditions contained in subsection 23AG(2).

Example 1.3

Eli is a motor mechanic employed by Emu Engineering Pty Ltd, a private company contracted by AusAID to provide vocational training in Vanuatu. He is posted to Vanuatu for 180 continuous days.

Eli's foreign service is directly attributable to the delivery of Australian ODA by his employer and his foreign earnings are therefore eligible for exemption pursuant to section 23AG, subject to the conditions contained in subsection 23AG(2).

1.22 Foreign service directly attributable to the delivery of Australian ODA does not include diplomatic or consular duties carried out by Australian residents.

The EM and the examples in the EM reveal that paragraph 23AG(1AA)(a) of the ITAA 1936 is intended to restrict the section 23AG of the ITAA 1936 exemption to foreign earnings derived by:

· Australian Public Service (APS) employees providing assistance that is classified as Australian official development assistance and is delivered through the Australian Government's aid program which is administered by AusAID or the Department of Foreign Affairs and Trade (DFAT); or

· other employees delivering Australian official development assistance on behalf of their employers who in turn have been contracted by the Australian Government to assist in the delivery of Australian official development assistance under the aid program that is administered by AusAID or DFAT.

In your case, you are employed by a charitable non-profit organisation in country X. You do not satisfy paragraph 23AG(1AA)(a) of the ITAA 1936 as your foreign service is not directly attributable to the delivery of Australian official development assistance program. The charitable organisation is based in country X and apart from the fact that AusAid is one of the donors of funds to the charitable organisation, there is nothing to indicate from the information you provided that the charitable organisation is an Australian official development assistance program being administered by AusAID. Your foreign service also does not satisfy paragraphs 23AG(1AA)(b),(d) or (e) of the ITAA 1936 as it is not in respect of public fund declared by the Treasurer to be a developing country relief fund and it is not in respect of an Australian disciplined force or activity specified in regulations.

Under paragraph 23AG(1AA)(c) of the ITAA 1936, your foreign earnings are exempt if they are attributed to activities of your employer where your employer is exempt from income tax because of paragraphs 50-50 (c) or (d) of the ITAA 1997.

Paragraphs 50-50(c) or 50-50(d) of the ITAA 1997 apply to prescribed charitable or religious institutions that are exempt from Australian income tax pursuant to item 1.1 or 1.2 of section 50-5 of the ITAA 1997. Such organisations are either located outside Australia or have physical presence in Australia but incur their expenditure and pursue their objective principally outside of Australia.

Item 1.1 of section 50-5 of the ITAA 1997 refers to charitable institutions whose exemption from income tax is subject to the special conditions in section 50-52(1) of the ITAA 1997, that requires the entity to be endorsed as exempt from income tax under subdivision 50-B of the ITAA 1997.

The status of the organisation that is endorsed is attached to its Australian business number (ABN) and can be publicly accessed through the Australian Business Register (see TAA Sch 1 section 426-65).

The charitable organisation is not listed in the Australian Business register and is not prescribed institutions in the Income Tax Assessment Regulations 1997 for the purposes of subsection 50-50(c) or (d) of the ITAA 1997.

The Explanatory Memorandum (EM) for Schedule 1, item1, paragraph 23AG(1AA)(c) provides that a person's foreign earnings will be eligible for exemption if the foreign service is directly attributable to their employers activities as an institution covered by paragraph 50-50(c) or 50-50(d)of the ITAA 1997.

As your employer is not exempt from income tax under paragraph 50-50(c) or (d) of the ITAA 1997, your foreign employment income attributed to the activities of your employer is not exempt from income tax under paragraph 23AG(1AA)(c) of the ITAA 1936.

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