Edited version of private ruling

Authorisation Number: 1011926441237

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Ruling

Subject: Approved overseas project

Question 1

Is the foreign income you derive from providing service on an approved project in another country 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

01 July 2010

Relevant facts

You are an Australian resident for tax purposes.

You are a contractor and you have been contracted by a company to provide security operations and consultancy services to the Australian embassy at a city in the foreign country for a department of the Australian Government.

The contract between the company and a department of the Australian Government is an approved overseas project for a defined period of time.

You have a short term contract. However, you will take the option to extend your contract for as long as the company has a contract with the department of the Australian Government. You do not intend to stay in the other country beyond your employment contract.

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

You are on call 24 hours seven days a week. You normally work more than 12 hours a day seven days a week.

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

You normally spend your R&R leave in Australia. You are not paid during this leave and do not perform any work related duties.

Your contract does not entitle you to any other types of leave.

Apart form your daily payments, you are reimbursed X0c per kilometre for each trip to and from the airport and $X0 per trip for meals and taxi fares.

You are not paying tax in the other country. Under an international Convention, a person in your situation is generally exempt from all dues and taxes.

There is no tax treaty between Australia and the other country.

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

Relevant legislative provisions

Income Tax Assessment Act 1936

· Section 23AF

· Subsection 23AF(3)

· Subsection 23AF(17)

· Subsection 23AF(18)

· Section 23AG

Reasons for decision

Question 1

Section 23AF of the ITAA 1936 provides that where an Australian resident has been engaged on 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 that 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 e.g. salary, wages, commission, bonuses, allowances, contractual payments and payments for recreation leave entitlements which accrue during the relevant period are eligible for the exemption from tax (subsection 23AF(18) of the ITAA 1936).

However, section 23AF of the ITAA 1936 does not exempt excluded income. Subsection 23AF(17) of the ITAA 1936 provides that income is excluded income if the income is exempt under section 23AG of the ITAA 1936 and exempt from tax in the overseas country, solely because of the provisions of a double taxation agreement between Australia and the other 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 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 and a work day is normally more than 12 hours. During your R&R leave, you do not perform any work related duties. You are also not entitled to any additional leave.

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. Therefore, the leave that accrues in respect of a period you were engaged on an approved project forms part of your qualifying service.

You are an Australian resident who provides service on an approved project in the other country for a continuous period of not less than 91 days. As your income is exempt from tax in the other country due to an international convention and not exempt from tax in the other country due to a double tax treaty, you satisfy the conditions under section 23AF of the ITAA 1936.

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