Edited version of your private ruling

Authorisation Number: 1012496432245

Ruling

Question 1

Is the income that you derived in the foreign countries during the relevant period exempt from income tax under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No. The income you derived in the foreign countries during the relevant period is not exempt from income tax under section 23AG of the ITAA 1936.

Question 2

Is the income that you derived in foreign countries during the relevant period exempt from income tax under section 23AF of the ITAA 1936?

Answer

No. The income you derived in foreign countries during the relevant period is not exempt from income tax under section 23AF of the ITAA 1936.

Subject: Foreign employment income

Relevant facts

The taxpayer is an Australian resident for tax purposes.

During the relevant period, the taxpayer worked in the humanitarian emergency sector in another continent.

The taxpayer worked with one foreign organisation for X months in one country during the famine to assist in malnutrition programs.

The taxpayer stated that the foreign organisation is an international emergency and relief organisation, helping those in need in developing countries in the sectors of health, nutrition, food security, shelter and WASH (water and sanitation).

The taxpayer also worked with another foreign organisation for a period of months in a developing country, during the famine. This foreign organisation is an emergency relief and children's development organisation, working in over 30 countries of the world, with its headquarters in a foreign country.

The taxpayer derived foreign income from these organisations. The taxpayer had not paid tax in any foreign countries on this income as these foreign organisations do not deduct any tax for its non-national workers so they pay tax in their respective countries only.

Assumptions

None made.

Relevant legislative provisions

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

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

Income Tax Assessment Act 1997 section 11-15

Income Tax Assessment Act 1936 section 23AG

Income Tax Assessment Act 1936 subsection 23AG (1)

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

Income Tax Assessment Act 1936 subsection 23AG (7)

Income Tax Assessment Act 1936 section 23AF

Income Tax Assessment Act 1936 subsection 23AF (11)

Income Tax Assessment Act 1936 subsection 23AF (18)

Income Tax Assessment Act 1997 section 30-80

Income Tax Assessment Act 1997 section 30-85

Income Tax Assessment Act 1997 section 30-86

Income Tax Assessment Regulations 1997 Regulation 50-50.01

Income Tax Assessment Regulations 1997 Regulation 50-50.02

Reasons for decision

Question 1

Summary

The taxpayer's foreign income derived from working for overseas organisations is not exempt under section 23AG as the taxpayer's foreign service is not directly attributable to any of the activities listed in section 23AG(1AA) of the ITAA 1936.

Detailed reasoning

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

The taxpayer as an Australian resident, derived income from foreign organisations by working overseas. Therefore, the salary is ordinary income under subsection 6-5(2).

Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.

If the salary the taxpayer earned by working in the humanitarian emergency sector in another continent is exempt, then it is not assessable in Australia.

Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list are section 23AG and section 23AF of the ITAA 1936, which deal with overseas employment income and income derived from approved overseas projects respectively.

Subsection 23AG (1) of the ITAA 1936 provides that where a resident is engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that service will be exempt from tax when, among other things, the foreign service is directly attributable to any of the following:

(a) Delivery of Australian official development assistance by the taxpayer's employer;

(b) Activities of the taxpayer's employer in operating a public fund, which is

i. declared by the Treasurer to be a developing country relief fund; or

ii. established and maintained by a public benevolent institution solely for providing money for the relief of distress from a disaster in specified countries;

(c) Activities of the taxpayer's employer as prescribed charitable or religious institution exempt from Australian income tax because it is located outside Australia or the institution is pursuing objectives outside Australia under paragraph 50-50(c) or (d) of the ITAA 1997 ;

(d) Deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force;

(e) an activity of a kind specified in the regulations.

As for category (a), Australian official development assistance (ODA) is assistance delivered through the Australian Government's overseas aid program, as administered by the Department of Foreign Affairs and Trade and /or the government aid agency. The Australian ODA may be delivered directly by government aid agency or by government aid agency contracting with an Australian or international entity to assist in the delivery Australian ODA - refer to paragraphs 1.19 to 1.21 of the Explanatory Memorandum which accompanied Tax Laws Amendment (2009 Budget Measures No. 1 Bill 2009) introducing subparagraph 23AG(1AA)(a) of the ITAA 1936.

In the present circumstances, the taxpayer was neither employed by government aid agency or by an employer who was contracted by government aid agency to assist in the delivery of Australian ODA. Accordingly, as there is no connection between the taxpayer's employment with the foreign organisations and the delivery of Australian ODA, the taxpayer's foreign service fails to qualify under category (a).

Under category (b)(i), a taxpayer will be eligible for exemption if his/her employment is directly attributable to an employer's activities in operating a public fund covered by item 9.1.1 of the table in subsection 30-80(1) of the ITAA 1997. Under this item, a public fund is declared by the Treasurer to be a developing country relief fund where certain conditions are satisfied. This includes the organisation being declared an approved organisation by the Minister of Foreign Affairs, as prescribed by section 30-85 of the ITAA 1997. Such funds are eligible to receive income tax deductible gifts or donations but require endorsement by the Australian Taxation Office (ATO) as a deductible gift recipient in order to do so.

A search has been conducted on the website of government aid agency in respect of the list of funds which are currently approved for tax deductibility by the Treasurer. There is no record of the foreign organisations that the taxpayer worked for during the relevant period on this list. Further, there is no record on the Australian Business Register website at www.abr.business.gov.au of these foreign organisations being recognised as deductible gift recipients. Therefore, the taxpayer's foreign service with these foreign organisations does not qualify under this category.

Under category (b)(ii), a taxpayer will be eligible for exemption if his/her employment is directly attributable to an employer's activities in operating a public fund covered by item 9.1.2 of the table in subsection 30-80(1) of the ITAA 1997, referred to as a developed country disaster relief fund. This item applies to a public fund operated by public benevolent institutions solely to provide relief to people of a developed country, other than Australia, who are in distress as a result of a disaster which is declared by the Treasurer to be a disaster. Developed country disaster relief funds are also eligible to receive income tax deductible gifts or donations and require endorsement by the ATO as a deductible gift recipient in order to do so.

As mentioned above, there is no record in the Australian Business Register of the foreign organisations, which the taxpayer worked for, being recognised as deductible gift recipients. Accordingly, the taxpayer's foreign service is not eligible for exemption under this category.

Category (c) refers to a prescribed charitable or religious institution which is exempt from Australian income tax. Prescribed institutions are those organisations which are listed by name in the Income Tax Regulations 1997 (ITR 1997) for the purposes of the income tax exemption provisions. In this regard, the Government decides which organisations will be prescribed in the ITR 1997.

Specifically, the tables in regulations 50-50.01 and 50-50.02 of the ITR 1997 list those organisations which are prescribed institutions for the purposes of the income tax exempt provisions, paragraph 50-50(c) or (d) respectively. As the foreign organisations which the taxpayer worked for, are not listed by name in the tables under the previously mentioned regulations, they are not prescribed institutions for the purposes of the above mentioned income tax provisions. Accordingly, the taxpayer's foreign service does not qualify under category (c).

As the taxpayer was not deployed by the Australian government as a member of a disciplined force, for example the defence force or peacekeeping force, the taxpayer's foreign service did not fall under category (d).

Under the final category, an exemption under section 23AG is available in respect of foreign service directly attributable to specified activities, which are gazetted in the Income Tax Regulations 1936. Currently, no activities are gazetted in the regulations. Therefore, the taxpayer's foreign service does not fall under category (e).

As the taxpayer's service for the foreign organisations did not fall under any of the five categories, the taxpayer's foreign income is not exempt under section 23AG.

Question 2

Summary

As the taxpayer's employment with each foreign organisation was not in respect of an approved project, the taxpayer's foreign income derived in the countries where the disasters had happened during the relevant period is not exempt under section 23AF.

Detailed reasoning

Section 23AF of the ITAA 1936 exempts foreign income from Australian tax where the income was earned by an individual from at least 91 days continuous service on an approved overseas project.

Approved project is defined in subsection 23AF (18), to mean an eligible project which is, or will be, in the national interest, and is approved in writing by the Minister of Trade or his delegate.

The Minister of Trade has delegated to government aid agency the power to grant approved project status for the purposes of section 23AF. The ATO is responsible for the administration of the income tax system in accordance with the Taxation Acts, including section 23AF.

A search was conducted on records held by the ATO in relation to section 23AF approvals. It shows that neither the two foreign organisations were approved projects granted by the Trade Minister. Consequently, the taxpayer's foreign income derived in the foreign countries during the relevant period is not exempt under section 23AF.

Therefore, the foreign income the taxpayer derived in these foreign countries is assessable in Australia.