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Ruling

Subject: Assessability of foreign income

Question and answer

Is the leave payment you receive from employment with your employer while providing services to the government department exempt from income tax in Australia?

No.

This ruling applies for the following periods:

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

You are an Australian resident for taxation purposes.

You do not have a contract with the government department .

You are released from your duties with your employer to provide services to the government department .

You receive a leave payment from your employer which is your normal salary.

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 51-5

Income Tax Assessment Act 1936 Section 23AD

Income Tax Assessment Act 1936 Subsection 23AD(2)

Reasons for decision

Subsection 6-5(2) of the ITAA 1997 provides that the income of an Australian resident includes ordinary income derived from all sources, whether in or out of Australia, during the year of income.

Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.

Exemption from income tax under section 51-5 of the ITAA 1997

Section 51-5 of the ITAA 1997 lists the types of defence payments that are exempt from income tax.

Item 1.4 (b) of section 51-5 of the ITAA 1997 states that pay and allowances as a member of the government department qualify for exemption unless it is pay or an allowance for continuous full time service.

In applying section 51-5 of the ITAA 1997 to your circumstances, consideration needs to be given to whether the leave payment received from your employer is paid to you as a member of the government department rather than an employee of your day to day employer, and if so, whether it in relation to continuous full time service.

From the facts provided, the income is received by you in the capacity of an employee of your day to day employer (as per the contract with your employer under Paragraph 7(a)) and not as a member of the government department .

You only have a contract with your employer, and do not have one with the government department, and therefore the leave payment is not exempt under 51-5 of the ITAA 1997.

As the leave payment is received by you from your employer as an employee and not as part of your government department income, the income is considered to be assessable.

Exemption from income tax under section 23AD of the ITAA 1936

Section 23AD of the ITAA 1936 provides an exemption from tax for the pay and allowances earned by a person serving as a member of the government department , provided all of the conditions of that section are met.

Section 23AD of the ITAA 1936 does not apply to you as the leave payment was not made to you by the government department, because, as discussed above, you are employed by your day to day employer and you do not have a contract with government department.

Therefore, your income is not exempt under section 23AD of the ITAA 1936.