Foreign service is not measured on a year-of-income basis. Where it straddles two income years, the entire period of that service is taken into account to determine the impact on your foreign earnings in applying both the:
Example
Claudia is an Australian resident who worked in England as a nanny for the period 12 April 2009 to 16 August 2010 - a continuous period of 492 days.
Prior to 1 July 2009, Claudia's foreign earnings were eligible to be exempt from tax in Australia. However, from 1 July 2009 her foreign earnings were not eligible to be exempt, as her foreign service was not directly attributable to a qualifying activity.
Although Claudia's period of service from 12 April 2009 to 30 June 2009 was less than 91 days, as her total period of continuous foreign service is 91 days or more, her foreign earnings from that period of service still qualifies to be exempt.
Claudia's income from her service for the period 1 July 2009 to 16 August 2010 will be taxed in Australia and she may be entitled to claim a foreign income tax offset in respect of the foreign tax paid on that income.
Absences that still count as foreign service
Some temporary absences during a period of foreign service still count as foreign service and will not affect continuity of the service. These are periods where, in accordance with the terms and conditions of your service, you are absent due to one of the following:
- recreation leave that wholly relates to the current period of foreign service, but does not include long service leave, leave without pay, extended leave or similar leave
- leave for accident or illness
- compassionate leave on account of an accident to, or the illness or death of, another person
- short business trips to Australia or another country that are directly related to your foreign service, provided they are not considered to be an excessive break
- breaks taken back in Australia - such as weekends, public holidays, rostered days off, compulsory lay-off or layover days, grounded days, flexidays and days off in lieu - provided they are not considered to be an excessive break.
Excessive break
An 'excessive break' occurs when absences from foreign service, which are subject to the 'excessive break test', total more than either of the following:
- one-sixth of the period of scheduled foreign service
- one-sixth of the income year, if the foreign service is ongoing.
Example
Tim is employed on a 12-month contract to work in China.
In exchange for forgoing public holidays, rostered days off and working weekends, he is given a two-week break for days off in lieu. He takes this break part way through his period of foreign service and spends it in Australia.
The 14-day break spent in Australia is not an excessive break as it is less than one-sixth of Tim's scheduled 365 days foreign service. Therefore, it forms part of Tim's period of foreign service, even though that time is spent in Australia.
Absences that do not count as foreign service
Longer absences during a period of foreign service will affect your continuity of the service and not count as foreign service. An example of this is maternity leave.
Taxpayers who die while on foreign service
A taxpayer who dies while on foreign service is taken to have been engaged in that foreign service for a continuous period of 91 days or more if the period of service would have been at least that long had they not died.
Last Modified: Thursday, 28 June 2012