Edited version of private advice

Authorisation Number: 1052206218397

Date of advice: 21 December 2023

Ruling

Subject: Section 23AG - exempt income

Question

Are your foreign earnings whilst posted in foreign country A exempt from tax in Australia under section 23AG of the Income Tax Assessment Act 1936?

Answer

Yes.

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.

These 91 days of employment must be a continuous period and there are some absences that do not break the continuity. One example of this is the absence allowed by the contract of employment such as the recreational leave as per the contract of service.

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

Therefore, the income you derive from your employment in the foreign country A is exempt from tax in Australia under section 23AG of the ITAA 1936.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for tax purposes, and you will remain a tax resident of Australia during your time in foreign country (Country A) on foreign service.

You have been deployed to Country A to work on the XX Program which is directly attributable to Australian Official Development Assistance (ODA).

You currently work for XX as a XX, after which you will be returning to Australia.

Your period of foreign services begun on XX/XX/20XX, and it will cease on XX/XX/20XX. As such you are working in Country A for a period longer than 91 days.

You will not be performing any work related duties for the employer during your visits back to Australia.

Your contract specifies that you are entitled to XX days recreational leave per year of service.

There is a double tax agreement between Australia and Country A - The Agreement between Australia and the Country A for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. (The Country A agreement). This is used to determine the taxation implications of the income received.

Article X of the agreement provides that salaries, wages, and similar remuneration derived by an individual who is a resident of Australia in respect of an employment can be taxed in Country A in circumstances which include where the employment is exercised in Country A for a period or periods exceeding 90 days in a year of income.

You have provided a copy of the Agreement between you and your employer. You also supplied a copy of the Subsidiary Arrangement between both countries which confirms that Country A will exempt you from paying income or other taxes for the project you are currently working on.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

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

Income Tax Assessment Act 1936 section 23AG