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ATO Interpretative Decision

ATO ID 2010/177

Income Tax

Continuity of foreign service: absence due to personal leave, the entitlement to which did not accrue from foreign service
FOI status: may be released

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the taxpayer 'engaged in foreign service' for the purposes of subsection 23AG(6) of the Income Tax Assessment Act 1936 (ITAA 1936) during the period where the taxpayer is absent from work due to illness and utilises 'personal leave', the entitlement to which did not accrue from that foreign service?

Decision

No. The taxpayer is not 'engaged in foreign service' for the purposes of subsection 23AG(6) of the ITAA 1936 during the period where the taxpayer is absent from work due to illness and utilises 'personal leave', the entitlement to which did not accrue from that foreign service.

Facts

The taxpayer is an Australian resident for income tax purposes.

The taxpayer works as an employee of the Australian Federal Police (AFP) and is deployed to a foreign country.

The taxpayer's employment conditions in the foreign country are governed by a deployment determination (the Determination) of the AFP in conjunction with the Australian Workplace Agreement (the Workplace Agreement).

The Determination provides that unless varied by the Determination, leave entitlements will be provided for in the Workplace Agreement. The Workplace Agreement provides for an entitlement to 'personal leave' for personal illness or injury which accrues at a fixed rate of hours. The Determination does not vary personal leave entitlements provided for in the Workplace Agreement.

The taxpayer is repatriated to Australia due to illness. In accordance with the Determination and the Workplace Agreement, the taxpayer is granted personal leave during the period of illness.

The period of personal leave granted was greater than the personal leave that accrued to the taxpayer while they were deployed to the foreign country. Therefore, the taxpayer was required to utilise personal leave entitlements accrued from service in Australia.

The taxpayer receives salary and wage income during the period of personal leave that was accrued from service in Australia.

The taxpayer's foreign service is directly attributable to a deployment outside Australia as a member of a disciplined force pursuant to paragraph 23AG(1AA)(d) of the ITAA 1936.

The salary and wages derived by the taxpayer are not exempt from tax for any of the reasons stated under subsection 23AG(2) of the ITAA 1936.

Reasons for Decision

Subsection 23AG(7) of the ITAA 1936 provides that the term 'foreign service' means 'service in a foreign country as the holder of an office or in the capacity of an employee'.

Subsection 23AG(6) of the ITAA 1936 provides an extended meaning for the term 'engaged in foreign service' for the purposes of section 23AG of the ITAA 1936 to include periods during which the person is, in accordance with the terms and conditions of their foreign service, absent from work due to the reasons and restrictions set out in paragraph (a) or (b) of subsection 23AG(6).

Under paragraph 23AG(6)(b) of the ITAA 1936, a period during which a person is engaged in foreign service for the purpose of subsection 23AG(1) of the ITAA 1936 includes any period during which the person is, in accordance with the terms and conditions of that service, absent from work due to illness. However, subsection 23AG(6) of the ITAA 1936 requires that the period during which the person is absent is 'in accordance with the terms and conditions of that service'.

The phrase 'in accordance with' is not defined and therefore takes its ordinary meaning.

The Macquarie Dictionary defines the word 'accordance' as follows:

1.
agreement; conformity.
2.
the act of according.

Applying the ordinary meaning of the word 'accordance' in the context of the phrase 'in accordance with the terms and conditions of that service' in the present case means 'in agreement or conformity' with the terms and conditions of the taxpayer's foreign service. The term 'that service' in subsection 23AG(6) of the ITAA 1936 is used in the context of the 'foreign service'.

In the present case, the taxpayer accrues personal leave under the terms and conditions of the Workplace Agreement while they are deployed overseas. The taxpayer's period of absence from work due to illness included both personal leave accrued to the taxpayer from service in Australia and personal leave accrued while the taxpayer was engaged in foreign service.

The taxpayer's period of absence from work on personal leave accrued while deployed to the foreign country is considered to be 'in accordance with the terms and conditions of that foreign service' and, therefore, comes within the extended meaning of the term 'engaged in foreign service' under subsection 23AG(6) of the ITAA 1936.

However, the period of absence from work on personal leave accrued from service in Australia is not in accordance with the terms and conditions of the foreign service as it relates to a period of service other than the 'foreign service'.

Accordingly, the taxpayer is not 'engaged in foreign service' for the purposes of subsection 23AG(6) of the ITAA 1936 during the period where the taxpayer is absent for work on personal leave, the entitlement to which did not accrue from that foreign service, as it was not in accordance with the terms and conditions of the 'foreign service'.

Note : as subsection 23AG(6) of the ITAA 1936 does not apply, the absence from work because of illness while on personal leave accrued from service in Australia is considered to be a break in a continuous period of foreign service. The 1/6th rule as contained in subsection 23AG(6A) of the ITAA 1936 may apply to deem the foreign service as continuous, however, its application will need to be determined in light of the specific circumstances of each case.

Date of decision:  27 September 2010

Year of income:  Year ended 30 June 2011

Legislative References:
Income Tax Assessment Act 1936
   section 23AG
   subsection 23AG(1)
   subsection 23AG(2)
   paragraph 23AG(1AA)(d)
   subsection 23AG(6)
   paragraph 23AG(6)(a)
   paragraph 23AG(6)(b)
   subsection 23AG(6A)
   subsection 23AG(7)

Related ATO Interpretative Decisions
ATO ID 2006/173

Other References:
The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW.

Keywords
International tax
Foreign income
Foreign salary & wages
Exempt income

Business Line:  International Centre of Expertise

Date of publication:  8 October 2010

ISSN: 1445-2782

history
  Date: Version:
You are here 27 September 2010 Original statement
  29 June 2012 Archived

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