Edited version of private ruling

Authorisation Number: 1011745480678

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Ruling

Subject: Foreign Income

Question 1:

Are the salary and allowances you derived from employment in Country X in the 2008-09 income year exempt income in Australia?

Answer 1:

Yes.

Question 2:

Are the salary and allowances you derived from employment in Country X in the 2009-10 income year exempt income in Australia?

Answer 2:

Yes.

This ruling applies for the following period:

Year ended 30 June 2009.

Year ended 30 June 2010.

The scheme commenced on:

1 July 2008.

Relevant facts

You are an Australian resident for income tax purposes.

From some time in the 2008-09 income year to some time in the 2009-10 income year, you were deployed by an Australian Government agency to work in Country X as part of particular operation.

You worked in excess of 91 days in Country X.

Over the course of your deployment, you took a couple of leave breaks. The leave that you undertook was accrued as a result of your foreign service. Although you returned to Australia during those breaks, you did not undertake any work related tasks.

Apart from your salary that was paid by an Australian Government agency - you received a few other specific allowances which were paid for expenses that related to your foreign employment.

Australia does not have a tax treaty with Country X.

Country X has a system in place that taxes employment income.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 11-15

Income Tax Assessment Act 1936 subsection 23AG

Income Tax Assessment Act 1936 subsection 23AG(1)

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

Income Tax Assessment Act 1936 subsection 23AG(2)

Reasons for decision

Section 11-15 of the Income Tax Assessment Act 1997 (ITAA 1997) lists those provisions dealing with income that 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.

In addition to your salary, you received a few allowances which were paid for expenses that related to your foreign employment.

As these allowances are paid to compensate for costs arising from your foreign service and for hardship attributable to your foreign service, they are considered to be derived from your foreign service.

Therefore, your salary and allowances are foreign earnings from foreign service for the purposes of subsection 23AG(1) of the ITAA 1936.

Subsection 23AG(1) of the 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 that foreign service are exempt from tax in Australia.

The exemption 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 the ITAA 1936. One of these reasons is (among other things) that there is no income tax system in the foreign country.

In your case, you were engaged in employment overseas for a continuous period of not less than 91 days from some time in the 2008-09 income year to some time in the 2009-10 income year. As Country X has a tax system in place that taxes employment income, none of the reasons listed in subsection 23AG(2) of the ITAA 1936 apply in your situation.

Income derived in Country X in the 2008-09 income year

Therefore, the salary and allowances you derived from employment in Country X during the 2008-09 income year is exempt income in Australia under section 23AG of the ITAA 1936.

Income derived in Country X in the 2009-10 income year

New subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that those foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to the following:

· delivery of Australian official development assistance by your employer.

· activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund, or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced a disaster (a public disaster relief fund).

· activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax because it is located outside Australia or the institution is pursuing objectives outside Australia.

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

In your case, you were employed by an Australian Government agency deployed to work in Country X. Therefore, your foreign service is considered to be directly attributable to the last condition mentioned above in subsection 23AG(1AA) of the ITAA 1936. Accordingly, you are considered to be deployed outside Australia by an Australian government as a member of a disciplined force.

Therefore, the salary and allowances you derived from employment in Country X in the 2009-10 income year is exempt income in Australia under section 23AG of the ITAA 1936.