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Ruling

Subject: Assessability of income under section 23AG of the Income Tax Assessment Act 1936

Question and answer

Are the foreign earnings you derive from working in a foreign country exempt income in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes.

This ruling applies for the following periods:

1 July 2012 to 30 June 2014.

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

You are an Australian resident for income tax purposes.

You are employed by an authority of the Government of Australia.

Your employer has assigned you to a position in a foreign country for several years.

During your assignment you will continue to be paid by your employer and your remuneration will include your usual salary plus allowances.

The laws of the foreign country you will be working in provide for the imposition of income tax and do not generally exempt employment income from income tax.

There is no tax treaty between Australia and the foreign country concerned.

You are not attached to the Australian High Commission, nor do you have any diplomatic status or privileges.

Relevant legislative provisions:

Income Tax Assessment Act 1936 Section 23AG

Reasons for decision

Under the provisions of Section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936), foreign earnings derived by an individual who is a resident of Australia for taxation purposes are exempt from income tax in Australia provided certain conditions are met. These conditions include:

· there must be a continuous period of foreign service of not less that 91 days, and

· that continuous period of foreign service must be directly attributable to, amongst other things, deployment outside Australia as a member of a disciplined force by the Commonwealth, or an authority of the Commonwealth (paragraph 23AG(1AA)(d) of the ITAA 1936).

Section 23AG of the ITAA 1936 defines:

· 'foreign earnings' as including income consisting of salary, wages, commission, bonuses or allowances,

· 'foreign service' as including service in a foreign country in the capacity of an employee, and

· 'employee' as including a person employed by a government or an authority of a government or by an international organisation.

The expression 'disciplined force' is not defined in the ITAA 1936 or in the Income Tax Assessment Act 1997 (ITAA 1997). However, considering:

· the language used in the provision and the statutory context of paragraph 23AG(1AA)(d) of the ITAA 1936,

· the explanation provided in the Explanatory Memorandum to the Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009 (which introduced paragraph 23AG(1AA)(d) of the ITAA 1936), and

· the content of the Second Reading Speech to the Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009 in the House of Representatives,

· we consider that for the purposes of paragraph 23AG(1AA)(d) of the ITAA 1936, a 'disciplined force' is an organisationally coherent and identifiable body of persons forming a defence, peacekeeping or police force. Such a force may or may not be multilateral and is tasked with the maintenance or establishment of law and order, stability and/or security.

We consider that your overseas assignment is to a 'disciplined force' within the context of paragraph 23AG(1AA)(d) of the ITAA 1936.

We consider that your assignment constitutes foreign service (as defined in section 23AG of the ITAA 1936) that is directly attributable to your deployment by an authority of the Commonwealth as a member of a disciplined force outside Australia

The remuneration you receive from your assignment constitutes foreign earnings for the purposes of section 23AG of the ITAA 1936.

As your assignment is for a period of several years you will be engaged in continuous foreign service exceeding 91 days. Accordingly, you meet the conditions referred to above for the exemption under section 23AG of the ITAA 1936 to apply to the foreign earnings you will earn from your assignment.

However, even though the above conditions may be met, Section 23AG of the ITAA 1936 also provides that no exemption is available in circumstances where an amount of foreign earnings derived from service in a foreign country is exempt from tax in the foreign country solely because of:

· a tax treaty or a law of a country that gives effect to such an agreement,

· the law of a foreign country generally exempts from, or does not provide for the imposition of income tax on income derived in the capacity of an employee, or

· a law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations applies.

There is no tax treaty between Australia and the foreign country you will work in and the laws of that foreign country provide for the imposition of income tax and do not generally exempt employment income from income tax. Furthermore, as you do not have any diplomatic status or privileges, no law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations applies to you.

Conclusion

The remuneration you receive from your assignment (comprising your base salary plus the allowances detailed in the section of this ruling titled 'Relevant facts and circumstances') will be exempt income in Australia under the provisions of section 23AG of the ITAA 1936.