Edited version of private ruling

Authorisation Number: 1011877507344

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Ruling

Subject: Assessability of overseas maternity leave payments

Question

Are the occupational and statutory maternity payments made by the overseas university considered exempt income in accordance with subsection 23AG(1AA) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No.

This ruling applies for the following period

Year ended 30 June 20XX

The scheme commenced on

1 July 20XX
Relevant facts
You are an Australian resident for tax purposes. You were employed under a two year contract by an overseas university.

You departed Australia early 20XX and returned late 20XX, commenced maternity leave and remained in Australia. The contract was suspended for the period of maternity leave, restarted in late 20XX and continued as part time until the contract ceased mid 20XX.

Your maternity leave payments from the university consisted of statutory and voluntary amounts.

Reasons for decision
Subsection 6-5(1) of the Income Tax Assessment Act 1936 (ITAA 1997) states that your assessable income includes income according to ordinary concepts, which is called ordinary income. Subsection 6-5(2) states that if you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

The maternity payments made by the university are assessable income as they are considered to be ordinary income as described in section 10-5 of the ITAA 1997 as allowances and benefits in relation to employment or rendering services.

Section 6-20 of the ITAA 1997 allows that ordinary income is exempt income if it is made exempt by the provision of the ITAA 1997 or another Commonwealth law. Section 23AG(1) of the ITAA 1936 requires that when a resident is engaged in foreign service for a period not less than 91 day then the foreign sourced income is tax exempt. However subsection 23 AG(1AA) of the ITAA 1936 was enacted effective from 1 July 20XX to stipulate that foreign employment income derived by Australian residents will only be exempt in certain circumstances.
The amendments introduce subsection 23AG(1AA) of the ITAA 1936 provide 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 Australia's overseas aid program by the individuals employer

· the activities of the individuals employer in operating a developing country relief fund or a public disaster relief fund

· the activities of the individuals employer being a prescribed institution that is exempt from Australian tax

· the individuals deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force; or

· an activity of a kind specified in the regulations.

As you do not satisfy any of the conditions for exemption under subsection 23AG(1AA) of the ITAA 1936 from 1 July 20XX, you are liable to Australian income tax on your foreign earnings from 1 July 20XX.
Note
Where foreign earnings that are not exempt under the new rules are subject to Australian income tax, taxpayers will be eligible to claim a non-refundable foreign income tax offset (FITO) for foreign income tax paid on that income. This will relieve double taxation for those individuals.