Edited version of private ruling

Authorisation Number: 1011789593878

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Ruling

Subject: Approved overseas project

Question

Is the foreign income you derive from providing service on an approved project in country X exempt from tax in Australia under section 23AF of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes

This ruling applies for the following period

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

The scheme commenced on

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are an Australian resident for tax purposes.

You are a contractor and you have been contracted by Company A to provide security operations and consultancy services to the Australian Embassy in Country X for the Department of Foreign Affairs and Trade (DFAT)

The contract between Company A and DFAT is an approved overseas project.

Your contract period is from 1 July 2010 to 30 June 2013.

You are contracted on a cyclical arrangement that is based on an eight weeks on followed by four weeks off.

The four weeks off is taken as rest and recuperation (R&R) leave accrued as a result of your foreign service in country X.

You usually spend your R & R leave in Australia and you do not perform any duties at this time.

You are on-call 24 hours seven days a week.

You will take no other leave apart from your R & R leave and whilst on leave, you are not being paid.

You are liable to pay income tax in country X.

There is no tax treaty between Australia and country X.

As you are a contractor, your foreign service does not qualify for exemption under section 23AG of the ITAA 1936.

Relevant legislative provisions

Section 23AF of the Income Tax Assessment Act 1936

Subsection 23AF(3) of the Income Tax Assessment Act 1936

Subsection 23AF(18) of the Income Tax Assessment Act 1936

Section 23AG of the Income Tax Assessment Act 1936

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Section 23AF of the ITAA 1936 provides that where an Australian resident has been engaged on a qualifying service on a particular approved project for a continuous period of not less than 91 days, any eligible foreign remuneration derived by the person that is attributable to the qualifying service is exempt from tax.

Qualifying service includes time spent outside Australia working on the project, reasonable travel time between Australia and the project, absences due to accident or illness while engaged on qualifying service, and time spent on leave which accrued during the qualifying service (subsection 23AF(3) of the ITAA 1936).

All income directly attributable to qualifying service by the taxpayer on an approved project (for example, salary, wages, commission, bonuses, allowances, contractual payments and payments for recreation leave entitlements which accrue during the relevant period) is eligible for the exemption (subsection 23AF(18) of the ITAA 1936).

However, section 23AF of the ITAA36 does not exempt excluded income. Subsection 23AF(17) of the ITAA 1936 provides income is excluded income if the income is exempt under section 23AG of the ITAA 1936 and exempt from tax in the overseas country.. 

Where the overseas service is performed under a cyclical arrangement, the whole of the work cycle (times on and off) may be regarded as a qualifying service where leave taken in circumstances similar to those described in Taxation Ruling IT 2015.

IT 2015 considers employees who had the following terms of engagement:

· 12-hour days

· 7-day working week

· Engaged in uninterrupted cycles of five weeks on site and five weeks leave

· Taking into account time off, over a period of 52 weeks average weekly hours would be in excess of 40 hours per week

· During the periods of leave in Australia, the employee is not required to attend the company's offices, but may be required to return to work at any time if required, and

· No further entitlement to any additional annual leave.

In your case, you are on-call 24 hours seven days a week. During your R&R leave, you are not required to attend the company's office. You are also not entitled to any additional leave.

Your circumstances are considered to be similar to that outlined in IT2015. Your average weekly hours worked would be in excess of 40 hours per week. The rotational time off compensates you for the long period worked. Therefore, the leave that accrues in respect of a period you were engaged on an approved project forms part of your qualifying service.

As you are an Australian resident who provides service on an approved project in country X for a continuous period of not less than 91 days, and your income is liable to income tax in country X, you satisfy the conditions under section 23AF of the ITAA 1936.

Accordingly, the income you derive from country X is exempt from income tax in Australia under section 23AF of the ITAA 1936.

Note:

Approved overseas projects income is taken into account in calculating Australian tax payable on other income derived by the taxpayer. Tax on the non-exempt income is calculated by applying a notional average rate of tax payable on the sum of the exempt and non-exempt income.