Edited version of private ruling

Authorisation Number: 1011771519784

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Ruling

Subject: Foreign employment income

Question:

Is your employment income derived as staff in Country E assessable in Australia?

Answer to Question:

Is your employment income derived as staff in Country E assessable in Australia?

No.

This ruling applies for the following periods:

Year ended 30 June 2010

The scheme commenced on:

01 July 2009

Facts:

You are an Australian resident for taxation purposes.

Your place of abode is in Australia.

Your spouse and dependants reside in Australia.

Your employer is based in Country B.

Your employer has a contract with the Department of Foreign Affairs & Trade (DFAT) to provide a specific service for the Australian Embassy and its staff in Country E.

Your employer has a contract with AusAID to provide a specific service for the staff of AusAID in Country E.

You commenced employment on a specific date in the 20XX-XX financial year and travelled from Australia to Country E to commence your employment..

Your work duties are:

· Provide a specific service for AusAID workers employed in Country E

· Provide a specific service for the Australian embassy and its staff in Country E

Your employment is performed from 8am to 10pm, seven days per week over an eight week period during which you are on-call 24 hours per day.

You worked a specific number of days during the period from a specific date in the 2010 financial year to the end of the 2009-10 financial year, with only rest and recreation days in-between your working rosters.

You returned to Australia during your periods of rest and recreation and were reimbursed by your employer for the costs of this travel.

Your rest and recreation leave accrues while you are employed in Country E.

You do not perform any work-related duties while on leave in Australia.

Your employer pays you a daily salary, a specific allowance and an allowance for a specific reason.

Your employment contract is currently under review for future periods of employment.

You intend to return home permanently when your employment contract ends.

Your employment income is taxable in Country E.

Relevant legislative provisions:

Income Tax Assessment Act 1997 subsection 6-5(2)
Income Tax Assessment Act 1997 subsection 6-15(2)
Income Tax Assessment Act 1997 section 11-15
Income Tax Assessment Act 1936 section 23AG
Income Tax Assessment Act 1936 subsection 23AG(1)
Income Tax Assessment Act 1936 subsection 23AG(1AA)
Income Tax Assessment Act 1936 subsection 23AG(2)
Income Tax Assessment Act 1936 subsection 23AG(6)

Reasons for decision

Foreign Employment Income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Salary and wages are ordinary income for the purpose of subsection 6-5(2) of the ITAA 1997.

Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not included in assessable income.

Section 11-15 of the ITAA 1997 lists those provisions dealing with income that may be exempt. Included in this list is section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936), which deals with overseas employment income.

Subsection 23AG(1) of the ITAA 1936 provides that where Australian resident individuals are engaged in foreign service for a continuous period of not less than 91 days, foreign earnings derived from that foreign service are exempt from tax in Australia. However, new subsection 23AG(1AA) of the ITAA 1936, which took effect from 1 July 2009, provides that those foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to the following:

· delivery of Australian official development assistance by your employer

· activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund, or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced a disaster (a public disaster relief fund)

· activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax because it is located outside Australia or the institution is pursuing objectives outside Australia

· deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force.

Your employer is contracted to provide a specific service for Australian embassy, it's staff and AusAID employees and you are directly employed to provide those services. Your employer is therefore considered to be enabling the provision of Australian official development assistance. As a result, your foreign service is directly attributable to the delivery of Australian ODA by your employer.

Subsection 23AG(6) of the ITAA 1936 provides that the period of foreign service will include recreation leave (which is accrued as a result of the foreign service) other than long service leave or leave without pay or reduced pay and will not constitute a break in a period of foreign service.

Where the overseas employment is performed under a cyclical arrangement, the whole of the work cycle (times on and off) is regarded as a continuous period of employment (Taxation Ruling IT 2441, Taxation Ruling IT 2015 and Taxation Ruling TR 96/15).

Your work circumstances are considered to be a cyclical arrangement as described in IT 2441 and TR 96/15. Therefore, your period of employment in Country E forms part of a continuous period of foreign service of not less than 91 days employment in accordance with subsection 23AG(1) of the ITAA 1936.

Subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG (1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the reasons listed.

There is no tax treaty between Australia and Country E. Your employment income from Country E is subject to tax in Country E under their domestic law. None of the other reasons listed apply to your situation.

Consequently, your foreign employment income will be exempt from Australian income tax under section 23AG of the ITAA 1936 and is not assessable under subsection 6-5(2) of the ITAA 1997.

Note:

If you derive income from exempt foreign employment under section 23AG of the ITAA1936, that income may be taken into account in calculating the tax payable on your other income.

You must declare foreign employment income you earn that is exempt from Australian tax as it is taken into account to work out the amount of tax you have to pay on your assessable income. In other words, whilst your exempt foreign employment income is not taxed in Australia, it will affect the tax you are liable to pay on any other income you earn.

Rulings and determinations

Taxation Ruling TR 96/15 (ATO View)

Taxation Ruling IT 2441 (ATO View)

Taxation Ruling IT 2015 (ATO View)

ATOID References (ATO View)

ATO ID 2010/3

ATO ID 2010/117

ATO ID 2010/79

ATO ID 2010/78

Other references

Explanatory Memorandum (EM), which accompanied Tax Laws Amendment (2009 Budget Measures No.1) Bill 2009, Chapter 1.13, 1.14

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