Edited version of private advice

Authorisation Number: 1052274785712

Date of advice: 25 July 2024

Ruling

Subject: Section 23AG - exempt income

Question 1

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

Answer

Yes.

Question 2

Are the allowances you receive in addition to your salary exempt from taxation in Australia under section 23AG of the ITAA 1936?

Answer

Yes.

Question 3

Does the leave you accrue as a result of your foreign service (other than long service leave and leave without pay) form part of the period of foreign service as per subsection 23AG(6) of the ITAA 1936?

Answer

Yes.

Exemption of income earned in overseas employment

Subsection 23AG(1) 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.

•                     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).

From the information provided, during your posting to Country B you will satisfy all 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 reasons:

•                     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)).

•                     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)).

Your income will not be exempt from income tax in Country B only because of one or more of the above reasons.

Therefore, subsection 23AG(2) of the ITAA 1936 will not apply to deny an exemption under subsection 23AG(1) of the ITAA 1936.

Accordingly, your foreign employment income (including allowances) whilst posted to Country B is exempt from taxation in Australia under section 23AG of the ITAA 1936.

Temporary absences from foreign service under section 23AG

Taxation Determination TD 2012/8 Income tax: what types of temporary absences from foreign service form part of a continuous period of foreign service under section 23AG of the Income Tax Assessment Act 1936? provides that a period during which a person is engaged in foreign service for the purpose of section 23AG of the ITAA 1936 includes a temporary absence from that service if, and only if, the absence is within the scheduled period of foreign service and is both:

•                     in accordance with the terms and conditions of that foreign service (that is, the absence is permitted by the employer, whether in an employment contract or under a separate arrangement) and

•                     for any of the following reasons.

-        Recreation leave on full pay that is attributable to the period of foreign service.

-        Because of an accident or illness of the taxpayer.

-        Because of an accident or illness of a person other than the taxpayer, including the death of another person.

-        In the course of carrying out either duties or training required by the employer under a continuing foreign service engagement (that is, work related trips directly related to the foreign service) provided the absences are not excessive by comparison with the scheduled period of foreign service.

The period you work overseas will constitute 'foreign service' for the purposes of subsection 23AG(7) of the ITAA 1936.

Accordingly, leave accumulated as a result of foreign service in Country B will form part of the period of foreign service under section 23AG of ITAA 1936.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

XX XX 20XX

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You are a full-time member of the Australian Defence Force (ADF).

You will be posted to Country B on a full-time assignment for a period of one year.

The purpose of your posting is as continuation of the international engagement relationship between Country B's military and the ADF as part of the ongoing training of both militaries.

While posted to Country B you are not a member of a diplomatic mission or any other similar agreement Australia has entered regarding diplomatic, consular, or other protection.

In addition to your base salary, you will receive multiple allowances.

There is no double tax agreement between Australia and Country B.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 23AG

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-15