Edited version of private ruling

Authorisation Number: 1011746819755

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Ruling

Subject: Residency and foreign employment income

Question 1

Were you a resident of Australia for tax purposes while were working overseas for the years ended 30 June 2009 and 30 June 2010?

Yes.

Question 2

Are the salary and overseas allowance you earned during the 2008-09 income year exempt from tax in Australia?

Yes.

Question 3

Are the salary and overseas allowance you earned during the 2009-10 income year exempt from tax in Australia?

No.

This ruling applies for the following periods:

Year ended 30 June 2009

Year ended 30 June 2010

The scheme commenced on:

1 July 2008

Relevant facts and circumstances

You are a citizen of Australia and your country of origin is Australia.

You are employed by an Australia Government department..

You are not working for AusAid.

You left Australia in the recent income year.

You have been employed overseas for a continuous period of over 91 days.

You had a contract as a short term non-ongoing employee.

Your initial contract commenced on in the recent income year and ceased in the subsequent income year.

You have a Diplomatic Visa.

You returned to Australia to supervise the removal of your furniture from your house so that you could rent it out and you returned overseas on a new longer term contract in the 2009-10 income year where you have lived and worked since that time.

Your current employment will end in the 2010-11 income year. You are able to extend for a further period into the 2011-12 income year.

You are living in a house in the Australian section .

Your spouse also worked in the overseas location. Your children have accompanied you overseas.

Your employment contract with the Australian Government department does not fall within the following:

· Australian Public Service (APS) employees providing assistance that is classified as Australian official development assistance and is delivered through the Australian Government's aid program which is administered by AUSAID of the Department of Foreign Affairs and Trade (DFAT); or

· other employees delivering Australian official development assistance on behalf of their employers who in turn have been contracted by the Australian Government to assist in the delivery of Australian official development assistance under the aid program that is administered by AUSAID or DFAT.

You are a contributing member of the Public Sector Superannuation Scheme (PSS).

You have had annual leave which is in your contract. These have ranged from a few days to some weeks which you took at Christmas time to travel to other overseas locations.

All your time out of your overseas employment location has been for work related trips or annual leave.

There is no provision in your employment contract allowing you to take time in lieu back in Australia for additional work done over there.

There is a requirement for you to travel to Australia as part of your work duties although this is short term only: a few days to a week at most usually twice per year.

You are only working in one overseas location. You are required to attend a yearly conference in another overseas location for work and a regular trip to Australia for work.

You are not working on a cyclical basis.

Tax is being withheld from your salary by the Australian Government department in Australia. Your salary is deposited into your bank account.

You are not paying tax in the overseas location.

You do not derive any other private income. You get a travel allowance when you travel the amount of which is dependant on the country travelled in and you received housing and living/hardship allowances in the overseas location as part of your package.

Your parents and your siblings live in Australia.

You have friends in Australia.

You are associated with an international school for your child.

You and your spouse have a joint bank account in the overseas location into which you get some of your pay.

Your spouse is not a Government employee, is not working in Australia and currently not contributing to a superannuation fund in Australia. Your spouse has a superannuation fund with a particular entity.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 995-1(1)

Income Tax Assessment Act 1997 subsection 6-5(2)

Income Tax Assessment Act 1997 subsection 6-15(2)

Income Tax Assessment Act 1997 subsection 11-15

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1936 section 23AG

Income Tax Assessment Act 1936 section 23AG (1AA)

Reasons for decision

Assessable income

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

In order to determine whether or not the income you earned whilst working for the Department of Foreign Affairs and Trade (DFAT) is to be included in your assessment income for the 2008-09 and 2009-10 income years, we must first determine your residency status.

Residency

The terms 'resident' and 'resident of Australia' are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides a series of tests to assist in ascertaining whether a person is a resident of Australia. These tests are:

the resides test;

the domicile test;

the 183 day test; and

the superannuation test.

The residency test that is potentially relevant to your circumstances involves membership of a superannuation scheme set up for employees of the Commonwealth. The Commonwealth superannuation fund test for residency covers Commonwealth government employees, as members of the Commonwealth superannuation funds (as well as their spouses and children under 16 years of age).

You are a 'resident' under this test if you are a contributing member of the superannuation scheme established by deed under the Superannuation Act 1990 (SA 1990), or an eligible employee for the purposes of the Superannuation Act 1976, or the spouse, or a child under 16, of a person covered by either of the above.

The SA 1990 established the PSS, and the Superannuation Act 1976 established a scheme called the Commonwealth Superannuation Scheme (CSS). As you are a contributing member of the Public Sector Superannuation Scheme (PSS), you satisfy the Superannuation test.

Therefore, you were an Australian resident for taxation purposes during the period of your employment overseas in the 2008-09 and 2009-10 income years.

Foreign employment income

As stated previously, a resident taxpayer's assessable income includes their ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Subsection 6-15(2) of the ITAA 1997 explains that if an amount is exempt income it is not included in assessable income. Section 11-15 of the ITAA 1997 lists those provisions dealing with income which 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.

2008-09 income year

Section 23AG of the ITAA 1936 provides a general exemption from income tax for the foreign earnings of an Australian resident taxpayer who works overseas for a continuous period of not less than 91 days. Under certain circumstances, two or more broken periods which together total 91 days can still be considered continuous for the purposes of the exemption.

Subsection 23AG(6) of the ITAA 1936 allows absences from work in accordance with the terms and conditions of your foreign service, for reasons that include accident or illness or, with some qualifications, on recreation leave that is wholly attributable to that foreign service, to not break the 91-day continuous foreign service period. In addition, Taxation Ruling TR 96/15 explains that short business trips to Australia or another foreign country for reasons directly related to your foreign service are considered to form part of your period of continuous foreign service.

During the 2008-09 income year you had two short work-related trips which, when calculated according to the above criteria meet the requirements of continuous foreign service for the purposes of the exemption and which result a total in excess of 91 days continuous foreign service.

Section 23AG of the ITAA 1936 does not apply where the income is exempt from income tax in the foreign country only because of any of the following reasons:

· a tax treaty or law of that foreign country that gives effect to a tax treaty;

· the foreign country exempts income from employment or does not tax employment income generally; or

· a law of another country or an international agreement with which Australia is a party dealing with the privileges and immunities of diplomats or consuls, or of persons connected with international organisations.

Australia does not currently have a tax treaty with the country in which you are currently working.

There are no exemptions from income tax in that country for employment income derived there. Under that country's tax laws employment income earned there may be subject to taxation in that country.

In line with this the foreign service you carried out in the overseas location that exceeded 91 days is not exempt from taxation in that country.

Accordingly, the salary and allowance received by you while working overseas is exempt from Australian income tax under section 23AG of the ITAA 1936 during the 2008-09 income year.

2009-10 income year

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 advises that foreign earnings are not exempt from tax unless the continuous period of foreign service is directly attributable to any of the following:

· the delivery of Australian official development assistance by the taxpayer's employer (generally provided by AusAID or the Department of Foreign Affairs and Trade);

· the activities of the taxpayer's employer in operating a public fund covered by the deductible gift recipient categories overseas aid fund and developed country disaster relief fund;

· the activities of the taxpayer's employer whether they are a charitable institution or religious institution which is income tax exempt because they are a prescribed institution located outside Australia or pursuing objectives principally outside Australia;

· 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); or

· an activity of a kind specified in the regulations (currently there are no specified activities listed in the regulations).

Broadly, the foreign service must be directly attributable to Australia's overseas aid program, a relief fund, an exempt institution or a disciplined force.

As you do not satisfy any of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936, the remuneration paid to you for your work overseas is not exempt from tax under subsection 23AG(1) of the ITAA 1936 in the 2009-10 income year.