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Ruling

Subject: foreign employment income

Question

Whether the income derived while deployed by the Australian authority for a period of not less than 90 consecutive days to the foreign country is exempt from tax in Australia?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences in:

1 July 2010

Relevant facts and circumstances

You are an Australian resident for tax purposes employed by the Australian authority as a salaried employee.

You were deployed to the foreign country in the year ended 30 June 2011.

You were deployed under the Australian Authority International Deployment Group.

You were in the foreign country for a consecutive period of not less than 90 days.

You were not exempt from tax in the foreign country.

Australia has no tax treaty with the foreign country.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 23AG

Income Tax Assessment Act 1936 Subsection 23AG(1)

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

Income Tax Assessment Act 1936 Subsection 23AG(2)

Income Tax Assessment Act 1936 Subsection 23AG(7)

Reasons for decision

Summary

Your income derived while deployed by the Australian authority for a period of not less than 90 consecutive days to the foreign country is exempt from Australian tax.

Detailed reasoning

Subsection 23AG(1) of the Income Tax Assessment Act 1936 (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 Australian tax.

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

Your deployment to the foreign country constitutes foreign service as you undertook service in a foreign country in the capacity of an employee.

To qualify for the exemption under subsection 23AG(1) of the ITAA 1936 the 'foreign earnings' must be derived from the 'foreign service'. That does not mean that the foreign earnings need to be derived at the time of engaging in foreign service. The important test is that the foreign earnings, when derived, need to be derived as a result of the undertaking of that foreign service.

You were deployed by the Australian authority to serve in the foreign country under the Australian Authority International Deployment Group mission.

As you derived income from your deployment to the foreign country, this income is considered to be derived from your foreign service.

As you are a resident of Australia for tax purposes and were engaged in foreign service for a continuous period of not less than 90 days, you satisfy all the basic tests for the exemption of foreign employment income in subsection 23AG(1) of the ITAA 1936.

Therefore, your income is exempt from tax in Australia, subject to the operation of subsections 23AG(1AA) and 23AG(2) of the ITAA 1936.

Subsection 23AG(1AA) of the ITAA 1936

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, amongst other things, the individual's deployment outside Australia as a member of a disciplined force.

A 'disciplined force' will comprise persons specifically performing the defence, policing and peacekeeping functions of the deployment but will also include those accompanying and providing assistance and support to those so engaged. Persons providing such ancillary support will be considered part of the 'disciplined force' provided they are effectively integrated into the force performing the primary functions of defence, peacekeeping and policing.

These people will be so integrated into the primary force where they are subject to the same or similar command structure and rules of conduct as those performing the primary functions of that 'disciplined force'.

In your case, you were a member of a disciplined force being an Australian authority employee deployed on an International Deployment Group mission who was subject to their Orders to achieve operational policing outcomes. Therefore you satisfy paragraph 23AG(1AA)(d) of the ITAA 1936.

Subsection 23AG(2) of the ITAA 1936

The exemption from Australian tax does not apply if the foreign earnings are exempt from foreign tax 'only because of any of the following' reasons set out in subsection 23AG(2) of the ITAA 1936:

· a tax treaty or law of that foreign country that gives effect to a tax treaty

· the foreign country exempts employment income from tax or does not tax employment income generally

· a law of another country or an international agreement with which Australia is a party dealing with the privileges and immunities of diplomats or consuls , or of persons connected with international organisations.

Subsection 23AG(2) of the ITAA 1936 does not apply as your income is not exempt from tax in the foreign country. Australia does not have a tax treaty with the foreign country.

Accordingly, the income you derived from your deployment to the foreign country is exempt from Australian tax.