Edited version of your written advice

Authorisation Number: 1012861977846

Date of advice: 18 August 2015

Ruling

Subject: Volunteers allowances and assessable income

Questions and answers:

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

Yes.

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

No.

This ruling applies for the following period:

Dd/mm/yyyy to dd/mm/yyyy.

The scheme commenced on:

The scheme has commenced

Relevant facts and circumstances:

You travelled to Country Y to be a volunteer.

The program forms part of Australia's official development assistance (ODA).

The program is funded by the Department of Foreign Affairs and Trade (DFAT).

Your period of service as a volunteer under the program in Country Y was for a period of greater than 91 days.

During the period you volunteered under the program you were employed by an educational institution.

You remained a resident of Australia for taxation purposes during this period.

As a result of being a participant in the program you received the following allowances in relation to your service as a volunteer:

• Settlement/resettlement allowance

• Living allowance

• Accommodation allowance

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

The remaining allowances were paid during your period of volunteering.

Country Y does not impose income tax.

As a volunteer under the program you were covered by the Memorandum of Understanding between the government of Australia and the government of Country Y on development cooperation (the MOU).

The MOU provides that the allowances paid to you in relation to your service as a volunteer for the X program in Country Y were exempt from taxation in Country Y.

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 Y you remained a resident of Australia for taxation purposes and the period of time you volunteered in Country Y 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, you were employed 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 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.

Settling/resettling allowance

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'.

Living and accommodation allowances

In contrast, the living and accommodation 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 X 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 X?

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 X 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 established in Taxation Ruling TR 2005/16 we consider that although you were engaged as a volunteer, X 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 X 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 one of the reasons listed in subsection 23AG(2).

There is a memorandum of understanding between Australia and Country Y titled Memorandum of Understanding between the government of Australia and the government of Country Y on development cooperation (The MOU).

The MOU applies to you and under clause x of the MOU, your foreign earnings are exempt from taxation in Country Y. 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 Y 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 and accommodation allowances paid to you in relation to your volunteering with the program in Country Y are all excluded from your assessable income in Australia under the provisions of section 23AG of the ITAA 1936.