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Edited version of private ruling
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Ruling
Are the salary and allowances you receive while you return to Australia to do training during the period of your deployment overseas counted as continuous foreign service for purposes of exemption under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)?
Yes.
This ruling applies for the following period
Income year ended 30 June 2010
Relevant facts
You are an Australian resident for taxation purposes.
You are currently a government service employee.
You were deployed for a two year deployment period overseas.
You were deployed urgently and you did not have the opportunity to complete your mandatory "pre-deployment training" prior to your initial engagement.
During your scheduled 24 months foreign service you will use one month to complete this training back in Australia.
The redeployment training is compulsory training to undertake overseas service.
Your training was undertaken a short period into your foreign service.
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 23AG(1)
Income Tax Assessment Act 1936 Subsection 23AG(7)
Income Tax Assessment Act 1936 Section 23AG
Income Tax Assessment Act 1936 Subsection 23AG(1AA)
Income Tax Assessment Act 1936 Subsection 23AG(6)
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 salary, wages, bonuses or allowances (subsection 23AG(7) of the ITAA 1936).
The foreign earnings must be derived from the foreign service, though not necessarily derived during the period of foreign service.
Section 23AG of the ITAA 1936 has been amended so that foreign employment income derived by Australian residents will only be exempt in certain circumstances. These amendments are effective from 1 July 2009.
Subsection 23AG(1AA) of the ITAA 1936 provides that foreign earnings are not exempt from tax unless the continuous period of foreign service is directly attributable to include:
· the taxpayer's deployment outside Australia as a member of a disciplined force of Australia (generally considered to be the Australian Defence Force or Australian Federal Police)
· As you are a government employee deployed overseas as a member of a disciplined force, you satisfy one of the conditions for exemption under subsection 23AG(1AA) 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:
(a) absent on recreation leave, other than:
(i) leave wholly or partly attributable to a period of service or employment other than that foreign service
(ii) long service leave, furlough, extended leave or leave of a similar kind (however described), or
(iii)leave without pay or reduced pay, or
(b) absent from work because of accident or illness
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.
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. In an attempt to clarify whether section 23AG will treat a temporary break visiting Australia within a person's commended foreign service engagement as a period of foreign service, paragraph 11 (a) of TR 96/15 provides the following guidance.
Business trips to Australia
Where an employee/office holder engaged in foreign service makes a short business trip to Australia or to another foreign country during a period of foreign service for reasons directly related to that person's continuing foreign service engagement, and made bona fide for that purpose, for example, to attend conferences, training sessions or briefing sessions, it is accepted that those trips should be treated as part of the person's continuous period of foreign service provided that are not excessive by comparison with the schedule period of foreign service.
In your case, you were already deployed overseas when you returned to do training in Australia. The training is directly related to your continuing foreign service engagement. Your total period of deployment will be for 24 months. The training period is not considered to be excessive by comparison to the schedule period of 104 weeks foreign service.
Accordingly, based on the guidelines provided in TR 96/15 paragraph 11(a), the training period can be treated as part of your continuous period of foreign service.
Consequently, the salary and allowances you receive while you return to Australia to do training during the period of your deployment overseas and can be counted as continuous foreign service for purposes of exemption under section 23AG of the ITAA 1936.
Note
It is important to note that foreign earnings exempt under section 23AG of the ITAA 1936 are taken into account in calculating the tax payable on other income derived by a taxpayer. This method of calculation referred to as exemption with progression prevents the exempt income from reducing the Australian tax payable on the other income. This income needs to be included as exempt foreign salary and wage income in your Australian tax return.
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