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Authorisation Number: 1011802592122

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Ruling

Subject: Foreign salary and wages

Classification:

Foreign salary and wages

This ruling applies for the following periods:

Year ended 30 June 2010

The scheme commenced on:

01 July 2009

Question:

Is your employment income derived as an employee for employer A in Country A exempt income in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer: No.

Facts:

You are an Australian resident for taxation purposes.

Your place of abode is in Australia.

Your employer Employer A which is based in Country B.

Employer A is exempt from Australian income tax and is registered on the Australian Business Register as a public benevolent institution.

Employer A is not listed as a deductible gift recipient on the Australian Business Register.

You commenced employment as an employee with Employer A on a specific date during the financial year ending 30 June 2008 and travelled from Australia to Country A to commence your position.

You were employed by Employer A as an employee in Country A.

You returned to Australia on a specific date during the financial year ending 30 June 2010.

Your employment with Employer A ceased on a specific date during the financial year ending 30 June 2010.

You worked throughout the period from a specific date during the financial year ending 30 June 2008 to a specific date during the financial year ending 30 June 2010 with only breaks for recreation leave during this time.

Your recreation leave accrued whilst you were employed in Country A.

Your periods of recreation leave were:

· from a specific date during the financial year ending 30 June 2009 to a specific date during the financial year ending 30 June 2009

· from a specific date during the financial year ending 30 June 2010 to a specific date during the financial year ending 30 June 2010

You returned to Australia at your own expense during your periods of recreation leave and did not perform any work duties during this time.

During your period of recreation leave from a specific date during the financial year ending 30 June 2009 to a specific date during the financial year ending 30 June 2009 you attended a course at a particular educational institution in Australia as part of your studies for your specific educational qualification.

You did not work on a cyclical basis (e.g. 8 weeks employment, followed by 2 weeks break) whilst in Country A.

Your employer paid you a wage/salary and you were not paid any allowances.

Your employer paid superannuation contributions into a superannuation fund on your behalf as part of your employment contract.

Your employer provided you with a cost-free health insurance scheme as part of your employment contract.

No tax was paid to the Country B tax authority as you state that you are not a resident of Country B for tax purposes, and your employment was performed in Country A.

You state that you are classed under Country A's law as a resident of Country A due to your contract of employment being for a period greater than a specific number of days duration, and as such your employment income is liable for personal income tax in that country.

No tax from your wage/salary was paid to the Country A tax authority for your employment in Country A.

There is no tax treaty or memorandum of understanding between Australia and Country A.

Reasons for decision

Foreign Employment Income

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 wages are ordinary income for the purpose 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 then it is not included in assessable income.

In the case of French v. FC of T (1957) 98 CLR 398 it was determined that the source of a taxpayer's income is generally the place where the duties or services are performed.

Section 11-15 of the 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.

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.

Period of service in Country A

Subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that 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.

Australian official development assistance

The Explanatory Memorandum (EM) which accompanied the Tax Laws Amendment (2009 Budget Measures No 1) Act 2009 states that Australian official development assistance is Australian government assistance intended to reduce poverty and promote sustainable development in developing countries provided directly under programs overseen by the Australian Department of Foreign Affairs and Trade (DFAT) and/or the Australian Agency for International Development (AusAID).

AusAID also oversees the delivery of Australian official development assistance under contract with both Australian and international service providers.

In your case:

Your employment with Employer A is not part of a program overseen by DFAT or AusAID, or under contract to AusAID, and therefore does not qualify as Australian official development assistance. Given this, your foreign employment income would not be exempt from tax in Australia under paragraph (a) of section 23AG(1AA) of the ITAA 1936.

Employer operating a developing country relief fund or a public disaster relief fund

The EM states that this applies where the continuous foreign service period of a resident individual is directly attributable to the activities of the individual's employer in operating a public fund covered by item 9.1.1 or item 9.1.2 in the table in subsection 30-80(1) of the ITAA 1997. Gifts or donations made to these public funds are tax deductible for income tax purposes to the donor.

Item 9.1.1 of subsection 30-80(1) of the ITAA 1997 applies to a public fund declared by the Treasurer to be a developing country relief fund. A developing country relief fund is a fund established by an organisation solely for the purpose of providing relief to people of a developing country. The organisation must be an approved organisation as declared by the Minister for Foreign Affairs and the country must be a developing country as declared by the Minister for Foreign Affairs. These conditions are contained in paragraphs 30-85(2)(a) and (b) of the ITAA 1997 respectively.

Item 9.1.2 of subsection 30-80(1) of the ITAA 1997 applies to a public fund operated by a public benevolent institution solely to provide relief to people of a developing country who are in distress as a result of a disaster (a public disaster relief fund). A public disaster relief fund is a fund established and operated by a public benevolent institution in response to an event recognised as a disaster by the Minister for Foreign Affairs. The recognition requirement is contained in section 30-86 of the ITAA 1997.

In your case:

Employer A is not listed as a deductible gift recipient according to publically available information held on the Australian Business Register. Given this, your foreign employment income would not be exempt from tax in Australia under paragraph (b) of section 23AG(1AA) of the ITAA 1936.

Employer is an exempt institution for income tax purposes

The EM provides further guidance on determining whether an employer is an exempt institution for income tax purposes.

1.28 A person's foreign earnings will be eligible for exemption if the foreign service is directly attributable to their employer's activities as an institution covered by paragraph (c) or (d) of section 50-50 of the ITAA 1997. [ Schedule 1, item 1, paragraph 23AG(1AA)(c )]

1.29 These paragraphs apply to a prescribed charitable or religious institution that is 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 a physical presence in Australia but incur their expenditure and pursue their objectives principally outside Australia.

Employer A is not contained within any of the lists contained within 50-50.02 of the ITAR 1997. Given this, Employer A does not fall within the requirements of paragraph (d) of section 50-50 of the ITAA 1997.

In your case:

As Employer A does not satisfy any of the requirements contained within section 50-50 of the ITAA 1997, your foreign employment income would not be exempt from tax in Australia under paragraph (c) of section 23AG(1AA) of the ITAA 1936.

Deployed as member of disciplined force

The EM states that the phrase "disciplined force" is intended to mean a defence force (including a peacekeeping force) that is engaged in a non-warlike operation. It also covers a member of a police force, and applies to members of the Australian Federal Police deployed on an International Deployment Group mission who are subject to Commanders Orders to achieve operational policing outcomes.

In your case:

You are not employed as a member of the Australian Defence Force or the Australian Federal Police and consequently your foreign service would not satisfy the requirements of this category. Given this, your foreign employment income would not be exempt from tax in Australia under paragraph (d) of section 23AG(1AA) of the ITAA 1936.

Conclusion:

As your foreign service with Employer A does not satisfy any of the criteria under section 23AG(1AA) of the ITAA 1936, the income from your employment with Employer A in Country A would not be exempt from tax in Australia under section 23AG of the ITAA 1936.

Consequently, your foreign employment income would not be classed as exempt income under subsection 6-15(2) of the ITAA 1997 and should therefore be included in your assessable income under subsection 6-5(2) of the ITAA 1997.

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(1AA),

Income Tax Assessment Act 1936 paragraph (a) of subsection 23AG(1AA),

Income Tax Assessment Act 1936 paragraph (b) of subsection 23AG(1AA),

Income Tax Assessment Act 1936 paragraph (c) of subsection 23AG(1AA),

Income Tax Assessment Act 1936 paragraph (d) of subsection 23AG(1AA),

Income Tax Assessment Act 1997 subsection 6-5(2),

Income Tax Assessment Act 1997 subsection 6-5(3),

Income Tax Assessment Act 1997 subsection 6-15(2),

Income Tax Assessment Act 1997 section 11-15,

Income Tax Assessment Act 1997 item 9.1.1 of the table in subsection 30-80(1),

Income Tax Assessment Act 1997 item 9.1.2 of the table in subsection 30-80(1),

Income Tax Assessment Act 1997 section 30-15,

Income Tax Assessment Act 1997 subsection 30-15(1),

Income Tax Assessment Act 1997 item 1 of the table in subsection 30-15(2),

Income Tax Assessment Act 1997 section 30-80,

Income Tax Assessment Act 1997 subsection 30-80(1),

Income Tax Assessment Act 1997 paragraph (a) of subsection 30-85(2),

Income Tax Assessment Act 1997 paragraph (b) of subsection 30-85(2),

Income Tax Assessment Act 1997 section 30-86,

Income Tax Assessment Act 1997 section 50-50,

Income Tax Assessment Act 1997 section 50-50 (a),

Income Tax Assessment Act 1997 section 50-50 (b),

Income Tax Assessment Act 1997 section 50-50 (c),

Income Tax Assessment Act 1997 section 50-50 (d),

Income Tax Assessment Regulations 1997 regulation 50-50.01, and

Income Tax Assessment Regulations 1997 regulation 50-50.02.

Rulings and determinations

Taxation Ruling TR 96/15 (ATO View)

Taxation Ruling IT 2441 (ATO View)

Taxation Ruling IT 2015 (ATO View)

Keywords

Exempt income

Foreign income

Foreign salary and wages

International tax

ATOID References (ATO View)

ATO ID 2010/3

ATO ID 2010/117

ATO ID 2010/80

ATO ID 2010/79

ATO ID 2010/78

ATO ID 2010/51

TR 96/15

Other references

Explanatory Memorandum (EM), which accompanied Tax Laws Amendment (2009 Budget Measures No.1) Bill 2009, Chapter 1.28, 1.29, 1.30