Edited version of your written advice

Authorisation Number: 1013052137144

Date of advice: 21 July2016

Ruling

Subject: Foreign income

Questions and answers

Is your foreign employment income derived in country A exempt from tax pursuant to section 23AD of the Income Tax Assessment Act 1936 (ITAA 1936) from # to #?

No.

Is your foreign employment income derived in country A exempt from tax pursuant to section 23AG of the ITAA 1936

No.

This ruling applies for the following period

Year ended 30 June 2014

Year ended 30 June 2013

Year ended 30 June 2012

Year ended 30 June 2011

Year ended 30 June 2010

The scheme commenced on

The scheme has commenced

Relevant facts

You were a resident of Australia for tax purposes.

You were employed by employer 1 from # to #.

You were employed by employer 2 as an # from #.

Employer 2 transferred you to work overseas from #.

You were employed by employer 1 and then employer 2 to work on an overseas project, but had to be approved for deployment by the Australian Defence Force to work there.

Your work contract states that you had the status of 'civilians authorized to accompany the force'.

Your employment as an # involved specialised activities.

Employer 1 and employer 2 both have their headquarters overseas and paid you in foreign currency.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 23AD

Income Tax Assessment Act 1936 Section 23AG

Reasons for decision

Section 23AD of the ITAA 1936

Generally, section 23AD of the ITAA 1936 exempts from tax the pay and allowances earned by persons serving as members of the Defence Force on eligible duty outside Australia. The opening words of subsection 23AD(1) of the ITAA 1936, accordingly, set out the threshold requirement for entitlement to the exemption, namely, that the person must be 'serving as a member of the Defence Force'.

The phrase 'member of the Defence Force' is not defined in the ITAA 1936 or in the Income Tax Assessment Act 1997 (ITAA 1997). The Replacement Explanatory Memorandum which accompanied the Taxation Laws Amendment Bill (No.2) 1993 introducing section 23AD of the ITAA 1936 does not shed much light on its meaning.

However, the Explanatory Memorandum which accompanied the Income Tax Assessment Bill 1965 introducing section 23AC of the ITAA 1936, a cognate provision, is more helpful. It relevantly states:

Clause 8: Exemption of Pay and Allowances of Members of the Defence Force serving in Special Areas

The purpose of this clause is to provide an exemption from income tax in respect of pay and allowances earned by members of the Defence Force...

Sub-section (1.) of the proposed section 23AC is the operative provision. It provides that the pay and allowances earned by a member of the Defence Force, i.e ., the Naval Forces, the Military Forces, and the Air Force , during a period of special service are exempt from income tax. (Emphasis added.)

Accordingly, a 'member of the Defence Force' in section 23AD of the ITAA 1936 is confined to those appointed or enlisted as members of the Australian Navy, Army and Air Forces. This interpretation is broadly consistent with the definition of 'defence member' in section 3 of the Defence Force Discipline Act 1982 (DFDA 1982).

You were employed by employer 1 and then employer 2 as an # in country A.

You are classified as contractor personnel with the status of 'civilian authorized to accompany the force'.

Although you worked side by side with the ADF personnel, you were not appointed or enlisted as a member of the Australian Navy, Army and Air Forces. Accordingly, you are not a 'member of the Defence Force' within subsection 23AD(1) of the ITAA 1936. Therefore, your foreign employment income is not exempt from tax pursuant to section 23AD of the ITAA 1936.

Section 23AG of the ITAA 1936

Generally, section 23AG of the ITAA 1936 provides that the foreign earnings of an Australian resident derived during a continuous period of not less than 91 days employment in a foreign country will be exempt from tax in Australia.

However, subsection 23AG(1AA) of the ITAA 1936 provides that those 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:

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

(b) the activities of the taxpayer's employer in operating a public fund covered by the deductible gift recipient categories overseas aid fund and developed country disaster relief fund;

(c) the activities of the taxpayer's employer where they are a charitable institution or religious institution which is income tax exempt because they are a prescribed institution located outside Australia or pursuing objectives principally outside Australia;

(d) the taxpayer's deployment outside Australia as a member of a disciplined force of Australia by the Commonwealth, a State or a Territory or an authority thereof; or

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

Your employers, employer 1 and employer 2 both have their headquarters overseas and paid you in foreign currency.

Your employer was not:

• delivering official development assistance;

• endorsed as an overseas aid fund or developing country disaster relief fund;

• a prescribed institution being exempt from income tax in Australia; or

• conducting an activity of a kind specified in the regulations.

Further, you were not deployed outside Australia as a member of a disciplined force of Australia by the Commonwealth, a State or a Territory or an authority of the Commonwealth, a State or a Territory.

Accordingly, your foreign employment income is not attributable to any of the activities listed in subsection 23AG(1AA) of the ITAA 1936. Therefore, your foreign employment income is not exempt from tax pursuant to section 23AG of the ITAA 1936.