Edited version of private advice

Authorisation Number: 1052374967689

Date of advice: 19 March 2025

Ruling

Subject:Foreign income

Question 1

Is income you earned from the Australian Commonwealth Government during your period of foreign service in Country A exempt from taxation in Australia under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer 1

Yes.

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.

•                     Your 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 XX by the Commonwealth).

From the information provided, during your posting to Country A you satisfied all of 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)); or

•                     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)).

You are a member of a XX fulfilling your posting in Country A, a jurisdiction in which the provisions of section 23AG(2) of the ITAA 1936 do not apply to prevent the exemption. Accordingly, your income will not be exempt from income tax in Country A 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.

Taxation Determination TD 2012/8 provides that under section 23AG of the ITAA 1936, foreign earnings do not need to be received at the time of engaging in a period of foreign service. The important test is that the foreign earnings need to be attributable to that period of service in a foreign country rather than to a period before or after the period of foreign service.

Your total period of foreign service is for a duration longer than 91 days and temporary absences from your period of continuous service have remained, and will remain, within legislated limits, that is your total period of absence does not exceed 1/6th of your total period of foreign service. Therefore, your period of foreign service is taken to constitute an unbroken period of foreign service in accordance with subsection 23AG(6A) of the ITAA 1936.

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

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You are a fulltime Australian Commonwealth Government employee.

You were deployed to a foreign country (Country A) for a continuous period from DD MM 20 XX to DD MM 20XX. You have provided us with a copy of your overseas posting notification which confirms this date (X total days).

You have provided us with a copy of the letter dated DD MM 20XX outlining your Employment in Country A.

Your income is not subject to taxation in Country A.

Country A normally taxes income from employment.

Your income is not subject to a tax treaty with Country A or a law giving effect to a treaty agreement.

Work in Australia during posting:

•                     You departed Country A on DD MM 20XX and arrived back in Country A on DD MM 20XX (X days)

•                     You departed Country A on DD MM 20XX and arrived back in Country A on DD MM 20XX. (X days)

During your posting, you took XX leave departing Country A on DD MM 20XX and arriving back in Country A several days later.

During your posting, you took X days XX leave out of Y days that accrued during your deployment.

During this posting you received the following allowances in addition to your salary:

•                     List of allowances provided.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 23AG