Edited version of private ruling

Authorisation Number: 1011581105943

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Ruling

Subject: Foreign employment income

1. Is any income you earned from your job in a foreign country for period A exempt from income tax in Australia?

No.

2. Is any income you earned from your job in a foreign country for period B exempt from income tax in Australia?

Yes.

This ruling applies for the following period:

Year ended 30 June 2009

The scheme commenced on:

1 July 2008

Relevant facts and circumstances

You are an Australian resident.

You were employed by a foreign company to undertake consultancy work in a foreign country.

You signed a contract with your employer that had the following conditions attached:

· you were employed to carry out specified duties

· you were paid a daily wage for carrying out your duties

· you represented the foreign company that employed you at site meetings

· you were not paid a commission for completing a task such that the success or otherwise of the project you were working on did not have any bearing on the payment of your wage

· you supplied some equipment but your employer supplied all other equipment

· you could not work for another company unless your employer permitted it

· the health insurance supplied to other employees was also supplied to you

· you accrued unpaid leave.

As a result of these conditions, you considered that you were engaged as an employee.

You arrived in the foreign country.

Your movements in the financial year while employed in the foreign country were:

· You had a period of leave which you spent in Australia.

· You returned to the foreign country.

· You departed the foreign country and have not returned there since.

Australia has no double tax agreement with the foreign country.

You were advised verbally by a representative of your employer that income tax on your earnings was paid in the foreign country.

Relevant legislation provisions:

Income Tax Assessment Act 1936 Section 23AG

Income Tax Assessment Act 1936 Subsection 23AG(1)

Income Tax Assessment Act 1936 Subsection 23AG(2)

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 engaged in foreign service and derived during a continuous period of not less than 91 days are exempt from tax in Australia. Foreign earnings include salary, wages, bonuses or allowances.

Subsection 23AG(6) of the ITAA 1936 discusses the extended meaning of 'engaged in foreign service'. It states that the period during which a person is engaged in foreign service includes any period that the person is absent on recreation leave but not on leave without pay (subparagraph 23AG(6) (a) (iii) of the ITAA 1936).

The conditions for non-exemption listed in section 23AG(2) of the ITAA 1936 also need to be considered. It states that foreign earnings derived in a foreign country are not exempt from tax in Australia if the amount is also exempt from tax in the foreign country only because of:

· a double tax agreement

· salary or wages (or similar income) being exempt from income tax in the foreign country

· income tax not being imposed on salary or wages (or similar income) in the foreign country

· agreements to which Australia is a party concerning diplomatic or consular privileges, or privileges in relation to people connected with international organisations.

In your case, for period A, you were absent from your job in the foreign country on leave in Australia. Although the contract with your employer allowed you leave, the leave was unpaid. Accordingly, this time cannot be included in any calculation of the period you were engaged in foreign service under subparagraph 23AG(6)(a)(iii) of the ITAA 1936.

For period B, you were an Australian resident deriving foreign income from your employment in the foreign country for a continuous period of not less than 91 days so it is considered the conditions set down in subsection 23AG(1) of the ITAA 1936 were met for this period.

Australia does not have a double tax agreement with the foreign country, you paid income tax on your earnings in the foreign country, and you were employed by a foreign company (not on a diplomatic or consular posting, or employed by an international organisation) so none of the conditions for non-exemption listed in section 23AG(2) of the ITAA 1936 apply to your situation.

Conclusion

The conditions for exemption under section 23AG of the ITAA 1936 were not met for period A as you were absent from your foreign service on unpaid leave. You do satisfy the conditions for exemption from Australian income tax under section 23AG of the ITAA 1936 for period B as you were an Australian resident who received salary and wages from your foreign service in the foreign country for a period of not less than 91 days, and none of the conditions for non exemption listed in subsection 23AG(2) of the ITAA 1936 applied.

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