Edited version of private advice

Authorisation Number: 1052322917115

Date of advice: 24 October 2024

Ruling

Subject: Income tax exemption

Question

Is my income exempt from Australian Income Tax under the provisions of 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)for the duration of my posting as a member of the Australian Defence Force in Country A?

Answer

No.

This ruling applies for the following periods:

Year ended XX XXXX 20YY

Year ended XX XXXX 20YY

The scheme commenced on:

XX XXXX 20YY

Relevant facts and circumstances

You are an Australian tax resident.

You are a member of the Australian Defence Force (ADF) on deployment to Country A.

You have been posted in Country A from XX XXXX 20YY to XX XXXX 20YY.

You have advised that your liability for taxation is dealt with in:

•                     A memorandum of understanding (MOU).

You have supplied an email from payroll stating that your posting to Country A was in a diplomatic role under the provisions of the Vienna Convention on Diplomatic Relations 1961 (Vienna Convention). The contents of this email also detail that you could not also be posted under the MOU at the same time as the Vienna Convention.

You are eligible for diplomatic privileges and were issued a diplomatic passport.

This posting was for a period that exceeded 91 days of continuous foreign service.

You took recreation leave totalling XX days over the entirety of your overseas service of which no duties were performed over these periods.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 23AG

Reasons for decision

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 tax in Australia.

A person deployed outside of Australia as a member of a disciplined force may qualify for the exemption.

'Foreign service' includes service in a foreign country in the capacity as an employee and 'foreign earnings' includes income consisting of earnings, salary, wages and allowances (subsection 23AG(7) of the ITAA 1936).

Based on the information you have provided you satisfy all of the above criteria under subsection 23AG(1) of the ITAA 1936.

However, subsection 23AG(2) of the ITAA 1936 applies, to deny an exemption, if the foreign earnings are exempt from tax in the foreign country only because of one or more of the following reasons:

•                     a double tax agreement with Australia or a law giving effect to a double tax agreement (paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936)

•                     a law of that foreign country which generally exempts from, or does not provide for, the imposition of tax on income derived in the capacity of an employee, income from personal services or any other similar income (paragraphs 23AG(2)(c) and 23AG(2)(d) of the ITAA 1936), or

•                     a law or international agreement dealing with privileges and immunities of diplomats or consuls or of persons connected with international organisations (paragraphs 23AG(2)(e), 23AG(2)(f) and 23AG(2)(g) of the ITAA 1936).

You were the holder of a diplomatic passport while posted to Country A. Therefore, the salary and allowances that you received for your foreign service in Country A are exempt from taxation under the terms of an international agreement, being the Vienna Convention on Diplomatic Relations (1961). This exemption falls within the item listed in paragraph 23AG(2)(f) of the ITAA 1936 concerning diplomatic or consular privileges or immunities.

In order for subsection 23AG(2) of the ITAA 1936 not to apply to deny an exemption under section 23AG of the ITAA 1936, the salaries and allowances that you received must be exempt from taxation in Country A for a reason other than those listed under subsection 23AG(2) of the ITAA 1936. The details provided in this application are not sufficient to establish you are exempt for reasons other than your diplomatic posting. As a result, you do not qualify for an exemption under subsection 23AG of the ITAA 1936.