Edited version of private ruling

Authorisation Number: 1011821924920

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Ruling

Subject: Foreign employment income

Issue 1

Question 1

Is the employment income you received in relation to your employment in country A for the period 1 to period 2 exempt from income tax in Australia?

Answer

Yes

Question 2

Is the employment income you received in relation to your employment in country A for the period 3 to period 4 exempt from income tax in Australia?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2009

Year ended 30 June 2010

The scheme commences on:

1 July 2008

Issue 2

Question 1

Is the employment income you received in relation to your employment with Company A which provided security services to the Australian Government staff in country B for the period 5 to period 6 exempt from income tax in Australia?

Answer

Decline to rule

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

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 income tax purposes.

You were employed as a protection officer in the Foreign and Australian Government Office by Company A in country A for the period 1 to period 4. This work had a roster of weeks on and weeks off.

Your duties in country A were providing protection to Foreign and Australian Government Office diplomats and diplomatic staff and providing protection to Australian disciplined forces forensic instructors teaching at the country A's Police Academy.

The hours worked were:

· 8 travel days (covering 2 days each way over two rotations and an average of four days at 8 hours and four days at 24 hours) = 128 hours

· 101 work days (every day a work day except Friday. Standard working day of 10 hours, covering 8 am to 6 pm) = 1010 hours

· 14 training/ maintenance days (standard training/maintenance day each Friday of 8 am to 12 noon) = 56 hours

· 2 evening tasks (average of 4 hours per task) = 8 hours

Total hours worked: 1202

You did not take any breaks other than your rostered days off that were accrued during your foreign service in country A.

You did not perform any work-related duties when you were on rostered breaks in Australia.

Country A has a tax system that taxes employment income.

Australia does not have a tax treaty with country A.

You were also employed as a protection service officer by Company A in country B on a contract for the Australian Government for the period 5 to period 6. This work had a roster of weeks on and weeks off.

The hours worked were:

· 8 travel days (covering 2 days each way over two rotations and an average of four days at 8 hours and four days at 24 hours) = 128 hours

· 57 work days (Standard working day of 10 hours, covering 8 am to 6 pm) = 570 hours

· 2 training/ maintenance days (standard training/maintenance day each Friday of 8 am to 12 noon) = 16 hours

· 10 evening tasks (average of 3 hours per task) = 30 hours

Total hours: 744

Company A stated your role in country B was that of a bodyguard for senior Australian Government Officials.

Your daily duties in country B involved driving and providing protection to the Australian Government Head of Mission and any other Australian Government staff to their place of work, meetings, visits and social engagements.

The contract with the Commonwealth specified that staff were to be rotated in and out of country B every numbers of weeks because of the high tempo of activity and the high risks involved

You were not entitled to be paid for any off duty periods, holiday pay and sick leave.

Your employer, Company A declined to provide us a copy of their contract with Australian Government.

Relevant legislative provisions

Subsection 23AG(1) of the Income Tax Assessment Act 1936
Subsection 23AG(2) of the Income Tax Assessment Act 1936
Subsection 23AG(6) of the Income Tax Assessment Act 1936
Subsection 23AG(1AA) of the Income Tax Assessment Act 1936
Section 357-105 of Schedule 1 to the Taxation Administration Act 1953
Subsection 357-105(2) Schedule 1 to the Taxation Administration Act 1953

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.

Issue 1

Subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that foreign earnings of an Australian resident derived during a continuous period of foreign service of not less than 91 days employment in a foreign country are exempt from tax in Australia.  

Foreign service in country A for the period 1 to period 2

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 and Taxation Ruling TR 96/15).  

IT 2441 states that where a resident is employed in a foreign country, leave taken in circumstances similar to those described in Taxation Ruling IT 2015 is treated as recreation leave that forms part of a period of foreign service under subsection 23AG(6) of the ITAA 1936.

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 referring to recreation leave under subsection 23AG(6) of the ITAA 1936, TR 96/15 considers extended leave not to be part of the recreation leave. However, additional recreation leave entitlements granted to employees posted overseas are not extended leave where the additional leave is reasonable. This may be the case where it is granted due to the hardship involved in the postings resulting in the need for more rest and recreation.

In your case, your work schedule was weeks on, followed by weeks off as rostered leave which will be accrued as a result of your foreign service in Iraq. You were expected to work extended hours without additional compensation. You did not take any leave other than rostered leave and you returned to Australia during that time but you did not be work while in Australia.

Your circumstances are considered to be similar to that outlined in IT 2015. 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.

Accordingly, your rotational days off will be treated as recreational leave in accordance with IT 2441.

Your work circumstances are considered to be a cyclical arrangement as described in IT 2441 and TR 96/15. Therefore, the entire period of your cyclical arrangement forms part of a continuous period of foreign service.

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.

The new rules apply to foreign earnings derived on or after 1 July 2009 from foreign service performed on or after 1 July 2009. Foreign earnings derived on or before 30 June 2009 will remain eligible for exemption under the existing rules and foreign service performed on or after 1 July 2009 will be included in the calculation of the period of continuous foreign service, even where the foreign earnings derived on or after 1 July 2009 are no longer exempt.

During your employment period from period 1 to period 4, you worked a total of more than 91 days in country A. Even though your foreign earnings derived after 1 July 2009 is not eligible for exemption under the new rules, you may still be entitled to the exemption in respect of foreign service performed before 1 July 2009 as your total foreign service from period 1 to period 4 exceeded 91 consecutive days.

Therefore, you have engaged in continuous period of foreign service of not less than 91 days from period 1.

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. None of the reasons listed apply in your case.

There is no tax treaty between Australia and country A. Your employment income from country A was subject to tax in country A under their domestic law. None of the other reasons in subsection 23AG(2) of the ITAA 1936 apply to your situation.

You were engaged in employment overseas for a continuous period of not less than 91 days and your income from that employment is not exempt from tax in country A. Accordingly, the income derived from country A for the period 1 to period 2 is exempt from Australian income tax under subsection 23AG(1) of the ITAA 1936.

Foreign service in country A from period 3 to period 4

As previously mentioned, 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 provides 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 individual's employer;

· the activities of the individual's employer in operating a developing country relief fund or a public disaster relief fund;

· the activities of the individual's employer being a prescribed institution that is exempt from Australian tax; or

· the individual's deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force, and

· an activity of a kind specified in regulations.

In your case, you were employed by company A as a protection service officer in country A. Your duties were providing protection to Foreign and Australian Government Office diplomats and diplomatic staff, and providing protection to Australian disciplined forces forensic instructors teaching at the country A's Police Academy.

As your foreign service is not directly attributable to any of the aforementioned conditions for exemption under subsection 23AG(1AA) of the ITAA 1936, your income from country A for the period 3 to period 4 is not exempt from tax in Australia under subsection 23AG(1) of the ITAA 1936.

Issue 2

Foreign service in country B with the Australian Government

Under section 357-105 of Schedule 1 to the Taxation Administration Act 1953 (TAA), if further information is required in order to make a private ruling, the Commissioner must request that information from the applicant.

Because of the binding nature of a private ruling and the rights of review available to the applicant, the facts in relation to the scheme to be ruled on must be fully disclosed and explained to ensure that the scheme has been clearly identified.

Subsection 357-105(2) of the TAA provides that the Commissioner may decline to make the ruling if the applicant does not give the information to the Commissioner within a reasonable time.

As a response to our request for further information, a copy of the contract between Company A and the Australian Government has not been received, it is considered that insufficient information has been provided to enable a private ruling to be given.

Accordingly, the application for a private ruling under Division 359 of Schedule 1 to the TAA has been declined.

Decline to rule - explanatory notes

Your review rights

If the Commissioner declines to make a private ruling, we must give you reasons for the decision. This decision may be reviewable under the Administrative Decisions (Judicial Review) Act 1977 (ADJR).

The ADJR provides you with two main rights.

You can send a written notice to the Commissioner requiring us to provide a written statement of:

· the findings of material questions of fact

· the evidence these findings were based upon, and

· the reasons for the decisions.

You may be able to apply to the Federal Court of Australia or the Federal Magistrates Court for a review of the decision.

Review by the Federal Court or the Federal Magistrates Court

If you decide to apply to the Federal Court or the Federal Magistrates Court for a review of the decision, we suggest you seek professional advice about how to proceed. In addition, the Court will be able to provide you with some direction and assistance about the process. Any such application must be lodged within 28 days of the day on which the decision was made. Your appeal may involve a number of fees.

You may lodge your application for review at the Federal Court or Federal Magistrates Court in the State or Territory in which you ordinarily reside, or the State or Territory listed in the address for the Tax Office as shown on your written notice of advice.

You can find more information on the Federal Court website: www.fedcourt.gov.au, or the Federal Magistrates Court website: www.fmc.gov.au

Freedom of information

The Freedom of Information Act 1982 (FOI Act) gives you a legal right to access certain documents relating to this decision held by the Tax Office.

Requests for access under this Act must:

· be in writing

· describe the document you want in enough detail to identify the document

· give an address in Australia for reply

· include the $30.00 application fee, and

· be posted or delivered to the Tax Office.

The Tax Office may refuse you access to some documents, or portions of documents, that are subject to exemption provisions. There are rights of review should you disagree with this decision.

For further information about access to documents under the FOI Act or to obtain a Freedom of Information request form please refer to the contact numbers listed below.

Contact numbers

If you need help you can:

· Phone 13 28 69, or

· Visit our website at www.ato.gov.au

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