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Ruling
Subject: Taxation of your salary
Question and answer
Is your salary and wages exempt from tax in Australia for the period you were on sick leave?
No.
This ruling applies for the following periods:
Year ended 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You were a member of an Australian disciplined force deployed to Country X.
Your scheduled deployment was for a period of about a year commencing in 200X.
You commenced sick leave a very short time after your scheduled deployment concluded.
You remained on sick leave for some months.
You received a payment summary in 2011 which stated that you were paid taxable gross payments of $X and exempt foreign employment income of $Y in the 2011 financial year.
You received an amended payment summary in 2012 which stated that you were paid taxable gross payments of $X and exempt foreign employment income of $Y in the 2011 financial year.
You state that the payment summary was amended by your employer to reflect that the sick leave payments you received were now considered to be taxable gross payments and not exempt foreign employment income.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 23AG
Reasons for decision
Section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) provides that where Australian resident individuals are engaged in certain kinds of foreign service for a continuous period of not less than 91 days, any earnings derived from that foreign service will be exempt from tax in Australia.
The types of foreign service earnings that are tax exempt include those derived from deployment outside Australia by the Australian government (or an authority thereof) as a member of a disciplined force.
Although the period of foreign service must be continuous, some temporary absences from foreign service that are related to the service can be taken that will not constitute a break in the period of foreign service.
The Commissioner's view of temporary absences is contained in Taxation Determination TD 2012/8 Income tax: what types of temporary absences from foreign service form part of a continuous period of foreign service under section 23AG of the Income Tax Assessment Act 1936 (TD 2012/8).
Paragraph 1 of TD 2012/8 specifies that a period during which a person is engaged in foreign service for the purposes of section 23AG of ITAA 1936 includes a temporary absence from that service because of an accident or illness of the taxpayer. This is subject to the absence being both within the scheduled period of foreign service and in accordance with the terms and conditions of that foreign service (that is, the absence is permitted by the employer, whether in an employment contract or under a separate arrangement.
In addition, paragraph 59 of TD 2012/8 states that there is no limit to the period of temporary absence that can be treated as foreign service providing the leave is during the scheduled period of foreign service, and is allowed under the terms and conditions of that foreign service.
In your case, you were deployed for a scheduled period. You then commenced sick leave just after your deployment concluded.
The view of the Commissioner in regard to the intent of the legislative provisions regarding foreign service is that for any sick leave to be included in the period of foreign service, the leave must be taken during the scheduled period of foreign service. However, it is clear that you commenced sick leave after your scheduled deployment period had concluded. Therefore the sick leave component of the salary you received is taxable income.
Based on the above, it is considered that the amended payment summary issued to you in 2012 reflected the correct taxable and exempt foreign employment income components of your income for the 2011 financial year.