Foreign Salary Income is exempt
Salary & wages earned overseas are exempt
Exemption for income derived from qualifying service on approved projects
Foreign Salary Income is exempt
Salary & wages earned overseas are exempt
Exemption for income derived from qualifying service on approved projects
Salary & wages earned overseas are exempt
Section23 AG (1) says ...
Where a natural person (who is a resident)
has been engaged in service for a continuous period of NOT LESS THAN 91 days
the foreign earnings derived from that foreign service ... ARE EXEMPT
Section23 AG (2) says that the exemption WILL NOT APPLY if the amount was exempt ONLY BECAUSE OF....
(a) a law of the foreign country giving effect to a double tax agreement or
(b) a double tax agreement
(c) there are provisions in the law of the foreign country which exempt or
(d) there are no provisions which impose tax on.....
(i) income derived in the capacity of an employee
(ii) income from personal services
(iii) similar income
(e) a law corresponding to the International Agreements (Privileges and Immunities) Act 1963 or its regulations (that's the Act which frees foreign governments from Australian tax) or
(f) an international agreement or (g) law of the foreign country dealing with dealing with privileges and immunities of diplomats, consuls or members of international organisations
IN OTHER WORDS, section23 AG will exempt the
earnings,
salary,
wages,
commission,
bonuses or
allowances
derived in a foreign country over a period of not less than 91 days from Australian tax....
BUT it WILL NOT EXEMPT that income if the income was exempt in the foreign country only because of
a double tax agreement
the foreign country does not tax employment income
a law or agreement dealing with diplomatic privileges and immunities applies
Think about that term only because of. It packs quite a punch...
If a taxpayer is exempt from tax in a foreign country on employment income because of
an article in a Double Tax Agreement with Australia AND
a Memorandum of Understanding between Australia and the foreign country relating to exemption of earnings for people such as the taxpayer (for example an exemption for Australian Aid volunteers)
THEN that income is not exempt from tax in the foreign country only because of the Double Tax Agreement. There are two separate grounds for exemption.
One is the double tax agreement.
The other is the Memorandum of Agreement between the two countries
So the income will be exempt under section23 AG because it is not exempt from tax in the foreign country only because of the double tax agreement.
Foreign earnings are defined in section23 AG (7) as ...
Earnings, salary, wages, commission, bonuses or allowances
Section23 AG (3) & (4) - there's always a catch ...
If the taxpayer leaves Australia on 1 July and returns on 30 June, and has no other income derived from Australian sources, the exemption is a handy one (especially if the tax rate is lower in the country in which the income is derived)
However most taxpayers do not leave on 1 July and return on 30 June.
Where the taxpayer also derives income
in Australia in the year in which the (exempt) foreign income was derived, section23 AG (3) imposes a tax rate on that other income which is equivalent to the tax rate which would apply if the exempt foreign earnings were included in taxable income.Tax payable on the Australian derived other income is calculated according to the formula ......
|
notional gross tax |
|
|
------------------------------------- |
* other taxable income |
|
Notional gross taxable income |
IN OTHER WORDS you calculate the tax rate to apply to other income by:
|
the tax you would have paid if no exemption applied |
|
--------------------------------------------------------------------------- |
|
the taxable income if it included the exempt foreign earnings |
The definition of other taxable income provides that it can be reduced by
deductions attributable exclusively to that income and
a share of the deductions which relate to both sorts of income (foreign earnings and other income).
Section26 AG(4) deals with the apportionable deductions, which will probably not concern you.
Section23 AG (6) to AG (6E) allow the 91 days of continuous service to remain intact if there is an absence due to
leave,
accident or
illness.
Exemption for income derived from qualifying service on approved projects
Section23 AF provides exemption for income derived for personal services by Australian residents on approved overseas projects if the income is not taxed by the country in which the services are provided.
Section23AF (18) defines eligible contractors for whom the services can be performed and the eligible projects that will qualify for exemption ...
These are activities loosely referred to as 'foreign aid'
Full details of these provisions are contained at para 13-240 of the CCH Master Tax Guide.
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