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Edited version of private ruling

Authorisation Number: 1011542492774

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Ruling

Subject: Foreign source income

Questions and answers:

Is the salary you earned from your employment with Company X for Period 1 assessable income in Australia?

Yes.

Is the salary you earned from your employment with Company X for Period 2 assessable income in Australia?

No.

This ruling applies for the following period:

Year ended 30 June 2009

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

You were employed by a company based in Country Y.

You were based in Country Y.

You were an Australian resident for tax purposes for the entire year.

Your employment activities and locations from the time you commenced employment with Company to 30 June 2009 were provided.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 23AG.

Reasons for decision

Subsection 23AG(1) of the Income Tax Assessment Act 1936 (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. Foreign earnings include income consisting of salary, wages, bonuses or allowances (subsection 23AG(7) of the ITAA 1936).

Subsection 23AG(6) of the ITAA 1936 provides that for the purposes of this section, a period during which a person is engaged in foreign service includes any period during which the person is, in accordance with the terms and conditions of that service:

Subsection 23AG(6) of the ITAA 1936 treats certain types of absences to be counted as foreign service such as recreation or annual leaves and sick leave wholly attributable to the period of foreign service.

Subsection 23AG(6A) of the ITAA 1936 provides that two or more periods in which a person has been engaged in foreign service are together taken to constitute a continuous period of foreign service until the end of the last of the two or more periods or the start of the two or more periods when the person's total period of absence exceeds 1/6 of the person's total period of foreign service whichever happens sooner.

Taxation Ruling TR 96/15 deals with the practical application of section 23AG of the ITAA 1936. Paragraph 10 of TR 96/15 provides that subsection 23AG(6) of the ITAA 1936 does not cover the gamut of temporary absences. TR 96/15 at paragraph 11(b) provides guidance on how to treat temporary absences related to a period of foreign service. In particular it provides that in each case such visits fail to be treated as temporary absences related to a period of foreign service and are to be dealt as follows:

'A period of foreign service is taken to include weekends, public holidays, rostered days off, 'compulsory lay off/over days, 'grounded days' and flexidays and days off in lieu of such, provided:

Such breaks are authorised by the terms and conditions of the foreign service employment or engagement; and

Where such breaks are used by the person to visit or return to Australia they must not be excessive by comparison with the schedule period of foreign service or, if the period of foreign service is ongoing, by comparison with the income year. As a guide, the Commissioner considers that where such breaks are used to visit or return to Australia, they will be excessive where the total period of such breaks are more than one-sixth of the period of schedule foreign service or, if the period of foreign service is ongoing, more than one sixth of the income year. Therefore, where the total of temporary absences is excessive in terms of this paragraph, each temporary absence will be taken to break the foreign service period, subject to section 23AG(6A) of the ITAA 1936'.

Application to your circumstances

Period 1

Your first period of foreign service was for X days. You then returned to Australia for Z days.

This period of absence of Z days is greater than one-sixth of your X days of foreign service. Therefore, the first period of X days of foreign service is not treated as continuous with the next period of foreign service.

Your second period of foreign service was for X2 days. You then returned to Australia for Z2 days.

This period of absence of Z2 days is greater than one-sixth of your X2 days of foreign service. Therefore, the second period of X2 days of foreign service is not treated as continuous with the next period of foreign.

Therefore, for Period 1, there were two separate periods of foreign service of X days and X2 days both less than 91 days.

As there was no continuous foreign service of 91 days or more for Period 1, the salary you earned during this period will not be exempt under section 23AG of the ITAA 1936 and will be assessable income in Australia.

Period 2

You were in Country Y continuously as part of your foreign service for more than 91 days, the salary you earned during this period will be exempt under section 23AG of the ITAA 1936 and will not be assessable income in Australia.

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