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Edited version of your written advice
Authorisation Number: 1051353777624
Date of advice: 23 March 2018
Ruling
Subject: International Foreign Income
Question
Is your foreign employment income whilst posted to Country A exempt from taxation in Australia under Section 23AG of the Income Tax Assessment Act 1936?
Answer
No
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
17 January 20YY
Relevant facts and circumstances
You are an Australian resident for tax purposes.
You are to be posted to Country A on a fulltime assignment from early 20YY until mid 20XX as you have entered into a contract to provide services to assist with the delivery of a building program.
While posted you are not a member of a diplomatic mission, covered by the Vienna Convention or any other similar agreement Australia has entered into regarding diplomatic, consular or other protection.
The building program is an infrastructure development program funded through an agreement between the Governments of Australia and Country A. You are therefore working on an Australian Official Development Assistance Program whilst you are working in Country A.
There is no double tax agreement between the Governments of Australia and Country A nor is there any agreement between the countries that exempts your employment income from being assessable in Country A.
Country A normally does not tax income derived in the capacity of an employee and the local tax authority has no legislation relating to the taxation of income.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 23AG.
Income Tax Assessment Act 1997 Subsection 6-15(2).
Income Tax Assessment Act 1997 Subsection 6-5(2)
Assessable income – general
As a general rule, and under the provisions of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), the assessable income of an Australian resident taxpayer includes all the ordinary income they earn from all sources, in or out of Australia in an income year.
Income in the form of salary, wages and allowances are all types of ordinary income.
Although a payment may be considered ordinary income and will generally be assessable under the provisions of section 6-5 of the ITAA 1997, there are some instances where ordinary income may be excluded from an individual’s assessable income in Australia. This will be the case for example if a specific provision of the tax law makes the income exempt from taxation in Australia.
Exemption from taxation under section 23AG of the Income Tax Assessment Act 1936
Section 23AG of the ITAA 1936 provides that foreign earnings are exempt from income tax in Australia 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.
● From 1 July 2009 onwards, 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 person’s deployment outside of Australia as a member of a disciplined force by the Commonwealth).
● Subsection 23AG(2) of the ITAA 1936, must not apply to the taxpayer.
From the information that you have provided, during your posting you will satisfied all of the above criteria.
Subsection 23AG(2) of the ITAA 1936, prevents the exemption under subsection 23AG(1) of the ITAA 1936 where the income is exempt from income tax in the foreign country only because of one or more of the following conditions:
● a double tax agreement or a law of a country that gives effect to such an agreement (paragraphs 23AG(2)(a) and (b));
● the foreign country exempts from income tax, or does not provide for the imposition of income tax on, income derived in the capacity of an employee, income from personal services or similar income (paragraphs 23AG(2)(c) and (d)); or
● a law or international agreement dealing with diplomatic or consular privileges and immunities, or privileges and immunities of persons connected international organisations (paragraphs 23AG(2)(e), (f) and (g)).
Country A exempts from income tax income derived in the capacity of an employee, income from personal services or similar income. Your income is exempt in Country A solely because the local tax authority has no legislation which allows the taxation of income.
Therefore, subsection 23AG(2) of the ITAA 1936 will apply to deny an exemption under subsection 23AG(1) of the ITAA 1936.
Conclusion
Accordingly, as you do not satisfy all the exemption conditions provided for under section 23AG of the ITAA 1936, the income that you derive from your overseas deployment is assessable in Australia under section 6-5(2) of the ITAA 1997.