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Ruling

Subject: Foreign employment income

Classification:

Foreign salary and wages

This ruling applies for the following periods:

Year ended 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

The scheme commenced on:

30 June 2011

Question 1:

Is your employment income, excluding Travel Allowances, derived from your employment in Country X during the period commencing on a specific date during the financial year ended 30 June 2011 and ceasing on a specific date during the financial year ended 30 June 2013 exempt income in Australia under section 23AF of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer 1:

Yes.

Question 2:

Is your employment income consisting of Travel Allowances derived from your employment in Country X during the period commencing on a specific date during the financial year ended 30 June 2011 and ceasing on a specific date during the financial year ended 30 June 2013 exempt income in Australia under section 23AF of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer 2:

No.

Facts:

You are an Australian resident for taxation purposes.

Your place of abode is Australia.

You are employed as a contractor for Employer A in a particular capacity for a specific organisation located in Country X.

You have supplied your contractor agreement with Employer A valid from a specific date during the financial year ended 30 June 2011 for a period of a specific number of months.

Employer A has a contract with a specific organisation to provide specific services for another specific organisation and its staff in Country X.

You have supplied a letter dated on a specific date addressed to Employer A from the Australian Trade Commission (Austrade) confirming that the project you are employed on, entitled "Project A" (specific Project No.), has been granted Approved Project Status from a specific date during the financial year ended 30 June 2011 up until a specific date during the financial year ending 30 June 2013.

You departed Australia on a specific date during the financial year ended 30 June 2011 to travel to Country X to commence your position with Employer A.

Your work responsibilities include:

· specific duties

Employer A pays you a specific amount per day in a specific currency as remuneration for your services.

Your are employed on a full-time basis, working seven days per week over a specific period of weeks, and are also on-call 24 hours per day.

Your employment is subject to a cyclical arrangement whereby you work for a specific period of weeks in Country X followed by a specific period of weeks of unpaid leave, which you will take in Australia.

Your first period of leave under this cyclical arrangement will commence on a specific date during the financial year ending 30 June 2012 and you will be returning to Australia for rest and recreation.

You will not perform any work-related duties whilst on leave in Australia.

You are not entitled to any other leave apart from your specific period of weeks unpaid leave as provided for in the cyclical working arrangement.

You will be reimbursed by Employer A for the costs of return travel to Australia, including any overnight accommodation and petrol or taxi costs.

In addition, you are paid a Travel Allowance of a specific amount in a specific currency for each trip to and from Country X, along with a specific amount per day in a specific currency whilst travelling.

You state that your contractor agreement has an extension option, and that you intend to extend your contract for a further period of a specific number of months.

You intend to return home permanently once your contractor agreement ends.

Your employment income is taxable in Country X.

There is no tax treaty between Australia and Country X.

ATO views used:

ATO ID 2001/152

ATO ID 2001/256

ATO ID 2002/182

TR 96/15

Reasons for decision

Foreign Employment Income

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.

Your employment is subject to a cyclical arrangement whereby you work for a period of 8 weeks in country A followed by a period of 4 weeks unpaid leave, which you will take in Australia.

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 A 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 Afghanistan is exempt from income tax in Australia under section 23AF of the ITAA 1936.

Travel Allowance

In addition to the normal remuneration provided for under your contractor agreement, you receive a Travel Allowance for each trip to and from country A, together with an amount paid whilst travelling.

The Travel Allowance (including the additional amount paid whilst travelling) is paid to cover costs arising from your return trips to Australia while on rest and recreation leave, and is not paid to cover costs arising from the performance of your foreign service. Therefore, it is not considered to be derived from your foreign service.

Accordingly, the Travel Allowance (including the additional amount paid whilst travelling) is not considered to be exempt from income tax under subsection 23AF(1) of the ITAA 1936 and will therefore be classed as assessable income under subsection 6-5(2) of the ITAA 1997.

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.

Relevant legislative provisions

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

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

Income Tax Assessment Act 1997 section 11-15

Income Tax Assessment Act 1936 section 23AF

Income Tax Assessment Act 1936 subsection 23AF(1)

Income Tax Assessment Act 1936 subsection 23AF(3)

Income Tax Assessment Act 1936 subsection 23AF(4)

Income Tax Assessment Act 1936 subsection 23AF(9)

Income Tax Assessment Act 1936 subsection 23AF(11)

Income Tax Assessment Act 1936 subsection 23AF(17)

Income Tax Assessment Act 1936 subsection 23AF(18)

Rulings and determinations

Taxation Ruling TR 96/15 (ATO View)

Taxation Ruling IT 2441 (ATO View)

Taxation Ruling IT 2015 (ATO View)

Keywords

Exempt income

Foreign income

Foreign salary and wages

International tax

Approved overseas project

ATOID References (ATO View)

ATO ID 2001/152

ATO ID 2001/256

ATO ID 2002/182

TR 96/15