Edited version of your written advice

Authorisation Number: 1051186312479

Date of advice: 1 February 2017

Ruling

Subject: Foreign employment income

Question 1

Is the foreign employment income you derived from working overseas exempt income in Australia?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 201Y

The scheme commences on:

1 July 201X

Relevant facts and circumstances

Your employer is a registered Australian charity. You are on secondment to an international branch of the charity.

Your employment agreement indicates that you are employed an official in an overseas country commencing early in 201X financial year for a period of greater than 12 months.

You have been overseas for the entire period 1 July 201X to 30 June 201Y.

You have been advised by your employer that the income received is deemed as exempt income as per section 23AG.

Your employer is a prescribed charitable institution.

Article 8 of the Host Country Agreement between your employer and the Government of the overseas country (the Agreement) dated ddmmyy states that -

With regard to your employer's Officials who are in the overseas country, the Government undertakes to:

a) Grant them exemption from taxes, contributions and duties, inclusive of social security under the applicable Laws of the overseas country on income, emoluments, per diem and benefits in kind paid by the employer or received from foreign sources.

There is no tax agreement between Australia and the overseas country.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 23AG.

Income Tax Assessment Act 1936 Subsection 23AG(1AA).

Income Tax Assessment Act 1936 Subsection 23AG(2).

Income Tax Assessment Act 1997 Section 6-5

International Agreements Act 1953

Reasons for decision

The assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Salary and wages are ordinary income.

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

Section 11-15 of the ITAA 1997 lists those provisions dealing with income that may be exempt. Included in this list is section 23AG of the Income Tax Assessment Act (ITAA 1936), which deals with foreign earnings.

Subsection 23AG(1) of the ITAA 1936 provides that where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that foreign service are exempt from tax in Australia.

Subsection 23AG(1AA) of the ITAA 1936 provides that those foreign earnings will not be exempt under paragraphs 23AG(1)(b) and (c) of the ITAA 1936 unless the continuous period of foreign service is directly attributable to:

● 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;

● 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;

You were employed by the Australian branch of your employer for more than 12 months in an overseas country as an official. Your employer is a prescribed charitable institution. Accordingly, you satisfy one of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936.

However, the exemption does not apply if the income is exempt from tax in the foreign country only because of any of the reasons listed in subsection 23AG(2) of the ITAA 1936. One of the reasons listed is a tax treaty contained in the International Tax Agreements Act 1953. There is no tax treaty between Australia and the overseas country.

Your foreign earnings were exempt from taxation in the overseas country because of the terms of the Agreement entered into between your employer and the overseas country. The exemption provided by the Agreement does not fall under any of the other exemption categories.

As you satisfy the conditions for exemption under section 23AG of the ITAA 1936, the employment income you received during your deployment to the overseas country is exempt from income tax in Australia.