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Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1012603686511

Ruling

Subject: Foreign Employment Income

Question and answer

Are the salary and allowances you earn while posted to Country X exempt from income tax in Australia?

Yes.

This ruling applies for the following periods

1 July 2013 to 30 June 2014

1 July 2014 to 30 June 2015

1 July 2015 to 30 June 2016

The scheme commences on

1 July 2013

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.

You are a resident of Australia for tax purposes.

You were posted to Country X.

You are an employee of a disciplined force.

You will receive the following allowances as a result of your employment abroad:

      a. Attraction Allowance;

      b. Hardship Allowance;

      c. Overseas Living Allowance.

You will accrue recreation leave of 30 days per year as a result of your posting in Country X. You are likely to expend this recreation leave primarily in Australia. While in Australia on leave, you will not perform any work-related duties.

Your foreign earnings are exempt from taxation abroad because of a treaty between the Government of Australia and Country X

Country X taxes employment income under its domestic laws.

There is a tax treaty between Australia and Country X.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 23AG

Reasons for decision

Subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that foreign earnings are exempt from income tax where all of the following requirements are satisfied:

    • you are a resident of Australia and a natural person,

    • you are engaged in foreign service,

    • the foreign service is for a continuous period of at least 91 days,

    • you derive foreign earnings from that foreign service,

In your case, you were a resident of Australia for tax purposes and engaged in foreign service (and derived foreign earnings from that service) for a continuous period of more than 91 days.

However, 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 any of 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, or

    • deployment outside Australia by the Australian government (or an authority thereof) as a member of a disciplined force.

You have been deployed by a disciplined force.

Further, subsection 23AG(2) of the ITAA 1936 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 that subsection.

There is an agreement between Australia and Country X that exempts your income from taxation in Country X. This reason is not listed in subsection 23AG(2) of the ITAA 1936. Therefore, the salary you derived whilst on foreign service in country X is not excluded from section 23AG because of the provisions of subsection 23AG(2) of the ITAA 1936.

Your foreign service period is extended to take into account of certain kinds of leave including recreation leave (section 23AG(6) of the ITAA 1936).

You have indicated that you will accrue recreation leave whilst you are posted in Country X. The taxation treatment of this leave will be the same as your salary earned whilst posted in Country X.

Conclusion

The salary, allowances and leave you earn whilst in Country X is exempt from tax in Australia under section 23AG of the ITAA 1936.


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