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Ruling

Subject: Foreign service

Question

In your case, is the accrued recreation leave from your foreign service included for the purposes of determining the 91 day qualifying period required in Section 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No

This ruling applies for the following period

Year ended 30 June 2011

The scheme commences on

1 July 2010

Relevant facts and circumstances

You are a Government employee.

You were deployed by the Commonwealth outside Australia as part of a multilateral military force, and had the status of 'defence civilian' within the meaning of that term in the Defence Force Discipline Act 1982.

You were deployed for the purpose of performing an operational support role in a specified area outside Australia to support Defence operations.

You were deployed to a foreign country for a total period of less than 91 days.

You provided a copy of your deployment orders together with a copy of your movement orders for your return to Australia.

You left the foreign country and arrived in Australia on the following day.

You advised you had an annual leave balance of a certain number of hours prior to your departure to the foreign country and accrued a further number of hours as a result of your foreign service.

On the day after you arrived in Australia, you had leave which did not affect your accumulated leave.

After taking some leave which did not affect your accumulated leave balance you took a further number of days leave described as 'Annual Leave'.

You provided a copy of your leave history detailing annual leave taken for the period of leave.

You advised that leave accrued as a result of your foreign service is added to your already accumulated leave and that leave taken is from the earliest accrual date. This was confirmed with your Department.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 23AG

Income Tax Assessment Act 1936 subsection 23AG(1)

Income Tax Assessment Act 1936 subsection 23AG(6)

Reasons for decision

Subsection 23AG(1) of the 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 generally exempt from tax in Australia.

'Foreign service' includes service in a foreign country as the holder of an office or in the capacity of an employee (subsection 23AG(7) of the ITAA 1936).

Subsection 23AG(6) of the ITAA 1936, provides an extended meaning for the term 'engaged in foreign service' for the purposes of section 23AG of the ITAA 1936 to include periods during which the person is, in accordance with the terms and conditions of their foreign service, absent due to the reasons and restrictions set out in paragraph (a) or (b) of subsection 23AG(6) of the ITAA 1936.

Under paragraph 23AG(6)(a) of the ITAA 1936, a period during which a person is engaged in foreign service for the purpose of subsection 23AG(1) of the ITAA 1936, includes any period during which the person is, in accordance with the terms and conditions of that service, absent on recreation leave, other than:

· leave wholly or partly attributable to a period of service or employment other than that foreign service;

· long service leave, furlough, extended leave or leave of a similar kind (however described); or

· leave without pay or on reduced pay.

Paragraph 23AG(6)(b) refers to a person being absent because of accident or illness.

In your case, you accrued annual leave (recreation) of approximately a certain number of hours under the terms and conditions of your foreign service as a public servant. The leave that accrued as a result of your foreign service was added to the balance which had accrued as a result of your employment in Australia. Any leave taken reduces the leave balance from the earliest date. There is no means of differentiating the leave accrued from your foreign service to that already accrued from working in Australia. Upon return to Australia, you took annual leave of a certain number of days which is described as 'annual leave' on the leave history record provided by you.

As the leave taken was debited against your total balance, the leave taken is wholly attributable to a period of employment other than the foreign service. Therefore, the leave taken cannot be included for the purposes of determining the 91 day qualifying period required in Section 23AG(1) of the ITAA 1936.