Edited version of private advice

Authorisation Number: 1051857957151

Date of advice: 29 June 2021

Ruling

Subject: International income - 23AG

Question

Is your foreign employment income whilst working in Country A exempt from taxation in Australia under Section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 2020

Year ending 30 June 2021

The scheme commences on:

1 July 2019

Relevant facts and circumstances

You are an Australian resident for tax purposes who is working as a contractor in Country A.

You work as a contractor for Company A on Project 2019-XYZ.

We have received no evidence that your foreign service is directly attributable to the delivery of Australian official development assistance by your employer.

You work a rotating shift of XX days "on" and YY days "off" due to Covid pandemic restrictions. Therefore, you work in Country A for less than 91 day days before returning to Australia.

Your employer changed rosters to allow enough time to ensure the on/off roster is financially viable due to the mandatory 2-week hotel quarantine in Australia. As a result, the shifts changed to XX weeks on and YY weeks off. Travel days are included in the weeks off shift.

You spend approximately two to three days travelling and then 14 days in mandatory quarantine. Your remaining time of shift is spent with family at home or visiting friends and family.

Your off-shift time is not classified as recreation leave, it is simply off-shift time as per normal Fly-In; Fly-Out (FIFO) arrangements.

You are paid monthly into a foreign bank. You are also paid 9.50% superannuation. Your employer also withholds a X% local Income Tax amount from all payments.

Australia has not signed a double tax agreement (DTA) with Country A.

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)

Reasons for decision

Assessable income - general

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that 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 for the purposes of subsection 6-5(2) of the ITAA 1997.

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

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

Exempt income under section 23AG of the Income Tax Assessment Act 1936

Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings of an Australian resident derived during a continuous period of foreign service of not less than 91 days employment in a foreign country are exempt from income tax in Australia.

Foreign earnings include income consisting of salary, wages, bonuses or allowances (subsection 23AG(7) of the ITAA 1936).

Subsection 23AG(1AA) of the ITAA 1936 provides that foreign earnings are not exempt from tax unless the continuous period of foreign service is directly attributable to any of the following:

n the delivery of Australia's overseas aid program by the individual's employer (except if that employer is an Australian Government Agency);

n the activities of the individual's employer in operating a developing country relief fund or a public disaster relief fund;

n the activities of the individual's employer being a prescribed institution that is exempt from Australian tax; or

n the individual's deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force.

In your case you do not meet the conditions of subsection 23AG(1) of the ITAA 1936 as you have not been engaged in foreign service for a continuous period of not less than 91 days in a foreign country. As you work XX days shifts, you do not meet this condition.

Also, you do not meet the conditions of subsection 23AG (1AA) of the ITAA 1936 as you have not supplied confirmation from your employer confirming that your foreign service is directly attributable to the delivery of Australian official overseas assistance by your employer. You are also a contractor and are not employed for the purpose of this provision. None of the other provisions of subsection 23AG(1AA) are met either.

Conclusion

As you do not satisfy the conditions provided for under section 23AG of the ITAA 1936, the income that you derive from your overseas deployment to Country A is assessable in Australia under section 6-5(2) of the ITAA 1997 for the periods when you are resident in Country A.