Edited version of private ruling

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Ruling

Subject: Assessability of foreign earnings

Question

Is the salary and allowances you received for the period of your deployment to Country A on a secondment to the Australian Federal Police exempt from tax in Australia?

Answer

No

This ruling applies for the following periods:

1 July 2009 to 30 June 2010

1 July 2010 to 30 June 2011

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You are an Australian resident for income tax purposes.

You are a government employee.

You were seconded by your employer to the Australian Federal Police (AFP) to be deployed to Country A.

You were deployed on an AFP International Deployment Group Mission and were subject to Commanders' Orders to achieve operational policing outcomes.

You were paid salary and allowances for your foreign service by your employer.

You arrived in Country A in 2010 and completed your deployment in 2011.

You were deployed to Country A for a continuous period of not less than 91 days.

There is no double tax agreement between Australia and Country A.

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

Your salary and allowances for your foreign service were exempt from income tax in Country A under the terms of a Memorandum of Understanding (MoU) between the Governments of Australia and Country A.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 23AG ,

Income Tax Assessment Act 1997 Section 6-5 and

Income Tax Assessment Act 1997 Section 11-15 .

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.

Salary and allowances are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

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 ITAA 1936 which deals with overseas employment income.

Subsection 23AG(1) of the Income Tax Assessment Act (ITAA 1936) provides that where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from this foreign service are exempt from Australian tax.

However, subsection 23AG(1AA) of the ITAA 1936 provides that those foreign earnings will not be exempt under section 23AG unless the continuous period of foreign service is directly attributable to at least one of certain conditions. One of these conditions is contained in paragraph 23AG(1AA)(d) of the ITAA 1936 which provides that the person's deployment outside Australia is as a member of a disciplined force by the Commonwealth, a State or Territory or an authority of the Commonwealth, a State or a Territory.

What constitutes a "deployment outside Australia as a member of a disciplined force by the Commonwealth, a State or a Territory or an authority of the Commonwealth, a State or a Territory" is not set out in section 23AG of the ITAA 1936. However, the Explanatory Memorandum (EM) to the Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009) which introduced paragraph 23AG(1AA)(d) of the ITAA 1936, provides guidance on this.

Specifically, paragraph 1.31 of the EM states that "a disciplined force is intended to refer to a defence force, including a peacekeeping force, and a police force". Paragraph 1.32 of the EM states that In a police force context, the exemption would apply to Australian Federal Police employees deployed on an International Deployment Group mission who are subject to Commanders Orders to achieve operational policing outcomes".

Amongst other conditions, section 23AG(2) of the ITAA 1936 stipulates that generally, an amount of foreign earnings derived in a foreign country is not exempt from tax if the amount is exempt from income tax in the foreign country because of a double tax agreement or if income derived in the capacity of an employee is exempt from income tax.

You have stated that you are an Australian resident for income tax purposes. Applying subsection 23AG(1) of the ITAA 1936 to you, you derived salary and allowances from your foreign service in Country A. Your foreign service was for a continuous period of not less than 91 days.

You are a government employee who was seconded to the AFP by your employer. Applying the guidance offered by the EM on the interpretation of paragraph 23AG(1AA)(d), you were nonetheless deployed outside Australia as a member of a disciplined force. This was because you were deployed on an International Deployment Group mission with the AFP and were subject to Commanders' Orders to achieve operational policing outcomes.

For the purposes of subsection 23AG(2), your salary and allowances derived from your foreign service were exempt in Country A because of the terms of a (MoU) between the Governments of Australia and Country A.

There is no double tax agreement between Australia and Country A. The taxation laws of the Country A provide for the imposition of income tax on employment income and do not generally exempt such income from income tax.

Your salary and allowances were not exempt in Country A because of a double tax agreement or because of the exemption of employment income from income tax.

Thus, your salary and allowances were not exempt from tax in Country A because of any of the conditions in subsection 23AG(2) of the ITAA 1936.

Therefore, the salary and allowances you received for the period of your deployment to Country A is exempt from tax in Australia under section 23AG of the ITAA 1936.