Edited version of private advice

Authorisation Number: 1051892217092

Date of advice: 3 September 2021

Ruling

Subject: Foreign remuneration

Question 1

Is the income you derived as a consultant in carrying out professional services for a development aid programme in Country Y exempt from tax in Australia under section 23AF of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No.

Question 2

Is the income you derived as a consultant in carrying out professional services for a development aid programme in Country Y exempt from tax in Australia under section 23AG of the ITAA 1936?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You entered into a contract as a consultant with an entity based in Country X to carry out professional services in respect of a development aid programme carried out in Country Y.

You carried out your services under the contract in Country Y for a period of over 91 days.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 23AF

Income Tax Assessment Act 1936 Subsection 23AF(1)

Income Tax Assessment Act 1936 Paragraph 23AF(3)(a)

Income Tax Assessment Act 1936 Paragraph 23AF(3)(b)

Income Tax Assessment Act 1936 Subsection 23AF(11)

Income Tax Assessment Act 1936 Subsection 23AF(12)

Income Tax Assessment Act 1936 Subsection 23AF(18)

Income Tax Assessment Act 1936 Section 23AG

Income Tax Assessment Act 1936 Subsection 23AG(1)

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

Income Tax Assessment Act 1936 Subsection 23AG(7)

Income Tax Assessment Act 1997 Subsection 6-5(2)

Income Tax Assessment Act 1997 Subsection 6-15(2)

Income Tax Assessment Act 1997 Section 11-15

Reasons for decision

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.

Income derived from rendering personal services or from carrying on a business is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

Subsection 6-15(2) of the ITAA 1997 states 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. Sections 23AF and 23AG of the ITAA 1936 are included in this list.

Section 23AF exemption

Subsection 23AF(1) of the ITAA 1936 states that were a taxpayer, being a natural person, has been engaged on qualifying service on a particular 'approved project' for a continuous period of not less than 91 days, any eligible foreign remuneration derived by the person that is attributable to that qualifying service is exempt from tax.

A person shall be taken for the purposes of section 23AF of the ITAA 1936 to be engaged on qualifying service on an approved project during any period during which the person is outside Australia and is engaged in the performance of personal services in connection with the approved project or is travelling between Australia and the site of the approved project (paragraphs 23AF(3)(a) and (b) of the ITAA 1936).

Subsection 23AF(11) of the ITAA 1936 states that where the Trade Minister is satisfied that the undertaking of an 'eligible project' that was commenced, or is proposed to be commenced, after 19 August 1980 is, or will be, in the national interest, that Minister may, by writing signed by that Minister, approve that eligible project for the purposes of section 23AF of the ITAA 1936.

Subsection 23AF(12) of the ITAA 1936 states that the Trade Minister may, either generally or as otherwise provided by the instrument of delegation, by writing signed by that Minister, delegate to a person that Minister's power under subsection 23AF(11).

Subsection 23AF(18) of the ITAA 1936 states that:

•         the term 'approved project' means a project in respect of which there is in force an approval granted under subsection 23AF(11) of the ITAA 1936.

•         the term 'eligible project' means:

a)  a project for the design, supply or installation of any equipment or facilities; or

b)  a project for the construction of works; or

c)   a project for the development of an urban area or a regional area; or

d)  a project for the development of agriculture; or

e)  a project consisting of giving advice or assistance relating to the management or administration of a government department or of a public utility; or

f)    a project included in a class of projects approved in writing for the purposes of this section by the Trade Minister.

In your case, the aid programme you worked on is not an 'approved project' as it is not an 'eligible project' approved by the Trade Minister (or delegate) under subsection 23AF(11) of the ITAA 1936.

Therefore, your foreign remuneration is not exempt from tax under section 23AF of the ITAA 1936.

Section 23AG exemption

Subsection 23AG(1) of the ITAA 1936 states that where a resident, being a natural person, has been engaged in 'foreign service' for a continuous period of not less than 91 days, any foreign earnings derived by the person from that foreign service are exempt from tax.

Subsection 23AG(1AA) of the ITAA 1936 states that foreign earnings are not exempt from tax 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 person's employer (except if that employer is an Australian government agency (within the meaning of the ITAA 1997));

b)    the activities of the person's employer in operating a public fund that:

                      I.        is covered by item 9.1.1 or 9.1.2 of the table in subsection 30-80(1) of the ITAA 1997 (international affairs deductible gift recipients); and

                    II.        meets the special conditions mentioned in that item;

c)    the activities of the person's employer, if the employer is exempt from income tax because of paragraph 50-50(1)(c) or (d) of the ITAA 1997 (prescribed institutions located or pursuing objectives outside Australia);

d)    the person's deployment outside Australia as a member of a disciplined force by:

                      I.        the Commonwealth, a State or a Territory; or

                    II.        an authority of the Commonwealth, a State or a Territory;

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

Subsection 23AG(7) of the ITAA 1936 states that:

•         the term 'foreign service' means service in a foreign country as the holder of an office or in the capacity of an employee.

•         the term 'employee' includes:

a)  a person employed by a government or an authority of a government or by an international organisation; or

b)  a member of a disciplined force.

The reference to 'prescribed institutions' in paragraph 23AG(1AA)(c) of the ITAA 1936, above, refers to an entity registered as a charity in Australia that:

•         is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident; or

•         is a prescribed institution that has a physical presence in Australia but which incurs its expenditure and pursues its objectives principally outside Australia

The term 'Australian official development assistance' is not defined in section 23AG of the ITAA 1936.

Taxation Ruling TR 2013/7 Income tax: foreign employment income: interpretation of subsection 23AG(1AA) of the Income Tax Assessment Act 1936 (TR 2013/7) explains that 'Australian official development assistance' refers to activities or programs in respect of which the funding has been (or would properly be) classified, in whole or in part, by the Australian government as official development assistance (ODA) for the purposes of reporting to the Organisation for Economic Co-operation and Development (OECD). The 'delivery of Australian ODA' means the act of providing, giving or sending forth the relevant Australian ODA by the employer (paragraphs 5 and 6 of TR 2013/7).

In your case, you did not meet the requirements of subsection 23AG(1) of the ITAA 1936 because you were not engaged in 'foreign service' as you were not the holder of an office and were not an employee.

Further, even if you were the holder of an office or an employee, you would not have met the requirements of subsection 23AG(1AA) of the ITAA 1936 because:

•         your employer was not delivering Australian ODA

•         your employer was not operating a public fund

•         your employer was not a prescribed institution registered as a charity in Australia

•         you were not a member of a disciplined force

•         the aid programme was not an activity of a kind specified in the Australian income tax regulations.

Therefore, your foreign remuneration is not exempt from tax under section 23AG of the ITAA 1936.