Edited version of your written advice

Authorisation Number: 1012847667976

Date of advice: 24 July 2015

Ruling

Subject: Assessability of allowances paid to a volunteer under the Australian Volunteers Program

Questions and answers:

1. Is the settlement/resettlement allowance paid to you in relation to your volunteering with the Australian Volunteers Program included in your assessable income in Australia?

Yes.

2. Are the living, accommodation and dependant allowances paid to you in relation to your volunteering with the Program included in your assessable income in Australia?

No.

This ruling applies for the following period:

1 July 2013 to 30 June 2014.

The scheme commenced on:

1 July 20XX.

Relevant facts and circumstances:

You travelled to Country A to be a volunteer under the Program.

The Program forms part of Australia's official development assistance (ODA). The program is funded by the Department of Foreign Affairs and Trade (DFAT) and managed by Company A.

Your period of service as a volunteer under the Program in Country A, was from Date A to Date B.

During the period you volunteered under the Program you were employed by a government department of Country A.

You remained a resident of Australia for taxation purposes during the period you were in Country A.

In the relevant financial year you received the following allowances in relation to your service as a volunteer for the Program in Country A:

• settlement/resettlement allowance,

• living allowance,

• accommodation allowance, and

• dependant allowance,

The allowances were paid to you by Company A.

The settlement/resettlement allowance was paid to you before your period of service as a volunteer under the Program commenced.

The remaining allowances were paid during your period of volunteering.

Country A does not impose income tax.

As a volunteer under the Program in Country A you were covered by a memorandum of understanding (MOU) between the governments of Australia and Country A. The MOU exempted the allowances paid to you from taxation in Country A.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 10-5

Income Tax Assessment Act 1997 Section 15-2

Income Tax Assessment Act 1936 Section 23AG

Reasons for decision

Assessable income - general

If you are a resident of Australia for taxation purposes, allowances paid to you in respect of employment or services rendered are generally included in your assessable income as amounts of statutory income under the provisions of sections 6-10, 10-5 and 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997). However, if you have been employed overseas on foreign service, the provisions of section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) may provide an exemption from taxation in Australia on the income earned from that foreign service.

Exemption from taxation under section 23AG of the Income Tax Assessment Act 1936

Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings are exempt from income tax in Australia if all of the following requirements are satisfied:

• You are a resident of Australia for taxation purposes.

• 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.

• The foreign service is 'directly attributable' to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936 (the listed activities include the delivery of Australian ODA by your employer).

• The exception provision in subsection 23AG(2) of the ITAA 1936 (which operates to exclude the 23AG exemption from taxation on foreign earnings in some situations) does not apply to you.

During the period of time you volunteered in Country A you remained a resident of Australia for taxation purposes and the period of time you volunteered in Country A exceeded 91 days.

Foreign service is defined for the purposes of section 23AG of the ITAA 1936 to include service in a foreign country in the capacity as an employee and foreign earnings are defined to include allowances (subsection 23AG(7) of the ITAA 1936).

Although you were engaged as a volunteer for the Program by Company A, you were employed by a government department of Country A during your period of volunteering. Accordingly, we consider you were engaged in foreign service as defined in subsection 23AG(7) of the ITAA 1936. It follows that the allowances paid to you by Company A may be exempt from taxation under section 23AG of the ITAA 1936 provided it can be shown:

• those allowances were derived from your foreign service,

• your foreign service was directly attributable to the delivery of Australian ODA by your employer, and

• the exception provision in subsection 23AG(2) of the ITAA 1936 does not apply to you.

Class Ruling CR 2012/16 Income tax: assessable income: Australian Federal Police personnel deployed to the Republic of South Sudan as part of the United Nations peacekeeping force provides some guidance on when a payment will be considered to have been derived 'from your foreign service' for the purposes of section 23AG of the ITAA 1936. Paragraph 68 of Class Ruling CR 2012/16 specifies the test to be applied is that the foreign earnings cannot be attributable to a period before or after the period of foreign service.

The settlement/resettlement allowance you received was paid to you before your period of volunteering commenced. As a result, that allowance will not qualify for the exemption from taxation under section 23AG of the ITAA 1936 because it cannot be said to have been 'derived from your foreign service'.

In contrast, the living, accommodation and dependant allowances can be said to have been derived from your foreign service because those allowances were all paid to you during your period of volunteering. Accordingly, those allowances will qualify for the exemption from taxation under section 23AG of the ITAA 1936 if the remaining requirements for the exemption to apply are met.

Taxation Ruling TR 2013/7 Income tax: foreign employment income: interpretation of subsection 23AG(1AA) of the Income Tax Assessment Act 1936 provides guidance on when an employer can be considered to be delivering Australian ODA. Having regard to Example 2 in Taxation Ruling TR 2013/7 (employees of an entity contracted by DFAT to deliver Australian ODA) we consider Company A is delivering Australian ODA for the purposes of section 23AG of the ITAA 1936. The question then becomes, as a volunteer, were you an employee of Company A?

Although the term 'employee' is included in the definitions in subsection 23AG(7) of the ITAA 1936, the subsection does not actually define the word: it simply provides that individuals employed by certain entities are employees for the purposes of section 23AG of the ITAA 1936. A volunteer engaged by Company A under the Program is not caught by the inclusion in subsection 23AG(7) of certain individuals as employees for the purposes of section 23AG of the ITAA 1936, so further examination of what constitutes an employee for the purposes of section 23AG is required.

Taxation Ruling TR 2005/16 Income Tax: Pay As You Go - withholding from payments to employees provides some guidance on whether or not an individual is an employee. Having regard to the general principles espoused in Taxation Ruling TR 2005/16 we consider that although you were engaged as a volunteer, Company A was in a position to have a sufficient degree of control over your activities to the extent that you can be considered an employee of Company A for the purposes of section 23AG of the ITAA 1936.

Considering the above and referring again to Example 2 in TR 2013/7 we can conclude that your foreign service was directly attributable to the delivery of Australian ODA by your employer.

The final matter for consideration is whether or not the exception provision in subsection 23AG(2) of the ITAA 1936 applies to exclude you from entitlement to the 23AG tax exemption on your foreign earnings.

In simple terms, subsection 23AG(2) of the ITAA 1936 provides that your foreign earnings must be exempt from taxation in the foreign country concerned for a reason other than, or in addition to, any of the reasons listed in subsection 23AG(2).

As a volunteer under the Program in Country A you were covered by a memorandum of understanding (MOU) between the governments of Australia and Country A.

The MOU exempted the allowances paid to you from taxation in Country A. This is a reason in addition to those listed in subsection 23AG(2) of the ITAA 1936. Accordingly, the exception provision in subsection 23AG(2) does not apply to exclude you from the 23AG tax exemption on your foreign earnings.

Conclusion

The settlement/resettlement allowance paid to you in relation to your volunteering with the Program in Country A is not excluded from taxation in Australia under the provisions of section 23AG of the ITAA 1936. That allowance is included in your assessable income in Australia under the provisions of section 6-10, 10-5 and 15-2 of the ITAA 1997.

The living, accommodation and dependant allowances paid to you in relation to your volunteering with the Program in Country A are all excluded from your assessable income in Australia under the provisions of section 23AG of the ITAA 1936.