Edited version of private ruling

Authorisation Number: 1011909061780

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Ruling

Subject: overseas employment income

Question

Are the salary and overseas allowances you earned overseas exempt from income tax in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

This ruling applies for the following periods

Year ended 30 June 2010

Year ended 30 June 2011

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.

The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

· the application for private ruling, and

· contract of employment under section 122 of the Public Service Act 2008, and

· extract from contract with AusAID.

You are an Australian resident for income tax purposes.

Your employer was contracted through AusAID to deliver training overseas.

You were employed overseas for more than 12 months. The project was on a fly-in and fly-out basis. Your work roster for this period was six weeks overseas and one week in Australia. You worked for at least six weeks (between six and nine weeks) and then had one week's holiday in Australia.

In addition to your salary you received additional remuneration in the form of overseas allowances.

The overseas allowances were paid to cover various costs incurred while working overseas and are as follows:

· business related accommodation expenses after mobilisation,

· business related travelling expenses after mobilisation,

· hardship allowance, and

· equipment expenses.

Country A has a taxation system that taxes employment income.

Your salary and allowances is exempt from taxation in the overseas country under the Treaty on Development Co-operation between the Government of Australia and the Government of country A.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

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 Subsection 23AG(2)

Income Tax Assessment Act 1936 Subsection 23AG(3)

Income Tax Assessment Act 1936 Subsection 23AG(6)

Income Tax Assessment Act 1936 Subsection 23AG(7)

Reasons for decision

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

Salary and wages are generally regarded as ordinary assessable income.

Where an amount is exempt income, it is not regarded as assessable income.

In your case section 23AG of the ITAA 1936 is relevant.

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 income tax in Australia.

'Foreign service' includes service in a foreign country in the capacity as an employee and 'foreign earnings' includes income consisting of salary and wages or allowances (subsection 23AG(7) of the ITAA 1936).

Salary and overseas allowances

As you will receive a salary from your foreign employment, this salary is considered to be derived from your foreign service.

The overseas allowances are designed to cover various costs and hardship of the foreign service. As they will be paid to compensate for costs arising from the foreign service and for the hardship attributable to the foreign service, they will be considered to be derived from your foreign service.

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

Please note that the fact that your Australian employer is paying your remuneration into your Australian bank account does not alter the above.

Period of foreign service

Subsection 23AG(6) of the ITAA 1936 provides that a period during which a person is engaged in foreign service includes any period during which the person is absent on recreation leave in accordance with the terms and conditions of the foreign service.

Paragraph 11(b) of Taxation Ruling TR 96/15 provides that a period of foreign service is taken to include rostered days off provided that this time off is authorised by the terms and conditions of the foreign engagement.

The period of foreign service for the purposes of subsection 23AG(1) of the ITAA 1936 will include your week off spent in Australia. Therefore you meet the 'continuous period of not less than 91 days' requirement.

Conditions

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 29 June 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 person's employer (generally provided by AusAID or the Department of Foreign Affairs and Trade);

· the activities of the person's employer in operating a public fund covered by the deductible gift recipient categories overseas aid fund and developed country disaster relief fund;

· the activities of the person's employer where they are a charitable institution or religious institution which is income tax exempt because they are a prescribed institution located outside Australia or pursuing objectives principally outside Australia;

· the person's deployment outside Australia as a member of a disciplined force of Australia (generally considered to be the Australian Defence Force or Australian Federal Police); or

· an activity of a kind specified in the regulations.

In your case, you have been appointed to undertake a deployment to country A on an AusAID project.

It is considered that your deployment will be directly attributable to the delivery of Australian official development assistance by your employer through AusAID. Therefore you satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936.

Subsection 23AG(2) of the ITAA 1936 provides further conditions and 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 this section. The reasons include because of a double tax agreement, the foreign country does not tax employment income, or a law or agreement dealing with diplomatic privileges and immunities.

However, the income you earned while on your posting in country A is exempt from taxation in country A in accordance with the provisions under the Treaty on Development Co-operation between the Government of Australia and the Government of country A (Treaty).

The exemption provided by the Treaty does not fall within any of the reasons or exemption categories under subsection 23AG(2) of the ITAA 1936. Accordingly subsection 23AG(2) does not apply in your circumstances to deny an exemption.

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

Therefore, the salary and overseas allowances you received from working in country A are not assessable under subsection 6-5(2) of the ITAA 1997 and are exempt under subsection 23AG(1) of the ITAA 1936.