| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1051231696324
Date of Advice: 30 May 2017
Ruling
Subject: Long service leave - 23AG
Question and Answer
Are amounts of long service leave accrued from qualifying overseas employment exempt under Section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936)?
Yes
This ruling applies for the following period(s)
Financial year ended 30 June 2016
Financial year ended 30 June 2017
The scheme commences on
1 July 2015
Relevant legislative provisions
Section 23AG of the Income Tax Assessment Act 1936
Relevant facts and circumstances
You are employed by an Australian public agency.
You were deployed to foreign locations between 1 July 20XX and 30 June 20XX:
Your ordinary salary and wages were exempt under Section 23AG of the ITAA
Reasons for decision
Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings are exempt from tax where all of the following requirements are satisfied:
● the taxpayer is a resident of Australia and a natural person;
● the taxpayer is engaged in foreign service;
● the foreign service is for a continuous period of at least 91 days;
● the taxpayer derives foreign earnings from that foreign service;
● the foreign service is directly attributable to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936; and
● the foreign earnings are not exempt from income tax in the foreign country only because of one of the reasons listed in subsection 23AG(2) of the ITAA 1936.
'Foreign earnings' includes income consisting of salary and wages (including payments for LSL), while 'foreign service' includes service in a foreign country in the capacity as an employee (subsection 23AG(7) of the ITAA 1936).
As LSL accrues on a daily basis, the portion attributable to the service performed overseas can be separated from the portion attributable to service performed in Australia.
Payments for LSL that accrue during a period of foreign service qualify as 'foreign earnings' derived from that foreign service. This will apply regardless of whether a taxpayer takes the LSL during their period of foreign service, takes the LSL after their foreign service has been completed, or does not take the LSL but instead receives a lump sum payment on the termination of their employment for the unused LSL. Providing that the payment (or any part of it) is for LSL that accrued during the period of foreign service, the payment (or the relevant portion of it) is foreign earnings and will be exempt from income tax under subsection 23AG(1) of the ITAA 1936 on condition that all of the other requirements of section 23AG of the ITAA 1936 are satisfied.
The amount of tax (if any) payable in respect of the remaining, non-exempt, portion of the lump sum payment received on termination of employment for unused LSL, and any other income, is calculated pursuant to subsection 23AG(3) of the ITAA 1936.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
