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Edited version of private ruling
Authorisation Number: 1011721041364
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Ruling
Subject: Foreign employment income - bonus
Question
Are the bonuses you received in the 2009-10 income year which relate to periods of foreign employment in earlier income years exempt from income tax in Australia?
Answer: Yes
This ruling applies for the following period
Year ending 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts and circumstances
You are an Australian resident for taxation purposes.
In the 2009-10 income year you received bonuses relating to earlier income years.
In these years, you worked overseas and received foreign employment income.
This income was exempt foreign employment income.
Part of the bonuses you received in the 2009-10 income year relate to these earlier income years when you received exempt foreign employment income.
Relevant legislative provisions
Subsection 23AG(1) of the Income Tax Assessment Act 1936
Subsection 23AG(7) of the Income Tax Assessment Act 1936
Reasons for decision
Subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that where an Australian resident taxpayer is engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived from that foreign service will be exempt from income tax.
Subsection 23AG(7) of the ITAA 1936 defines 'foreign service' as service in a foreign country in the capacity of an employee and 'foreign earnings' as income consisting of earnings, salary, wages, commission, bonuses or allowances.
Paragraph 4 of Taxation Ruling IT 2534 provides that a bonus is taken to have been derived for income tax purposes at the time it is paid or otherwise made available to the employee. This is even where the bonus may have been paid with regard to duties that were performed in a previous year of income.
In your case, you received bonuses in the 2009-10 income year relating to earlier income years, when you worked overseas and received exempt foreign employment income. Although you derived the bonuses in the 2009-10 income year, part of the bonuses relates to earlier periods of foreign service and exempt foreign employment income.
The proportion of the bonuses that relates to your foreign service in the earlier income years is considered foreign earnings from that foreign service, and is therefore exempt from income tax in Australia under subsection 23AG(1) of the ITAA 1936.
Note
The proportion of the bonus that relates to service that is not foreign service is not exempt from tax under subsection 23AG(1) of the ITAA 1936.