Private ruling: foreign employment income
Published: March 2012
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 1 July 2009

Ruling: Question 1 | Is your foreign employment income derived in Country A exempt from tax pursuant to section 23AD of the Income Tax Assessment Act 1936 (ITAA 1936) for the years ended 30 June 2010 and 30 June 2011? | Answe r | No. | Question 2 | Is your foreign employment income derived in Country A exempt from tax pursuant to section 23AG of the ITAA 1936 for the years ended 30 June 2010 and 30 June 2011? | Answer | No.


Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AD and | Income Tax Assessment Act 1936 Section 23AG.

Reasons for decision: Summary: Section 23AD of the ITAA 1936 Generally, section 23AD of the ITAA 1936 exempts from tax the pay and allowances earned by persons serving as members of the Defence Force on eligible duty outside Australia. The opening words of subsection 23AD(1) of the ITAA 1936, accordingly, set out the threshold requirement for entitlement to the exemption, namely, that the person must be 'serving as a member of the Defence Force'. The phrase 'member of the Defence Force' is not defined in the ITAA 1936 or in the Income Tax Assessment Act 1997 (ITAA 1997). The Replacement Explanatory Memorandum which accompanied the Taxation Laws Amendment Bill (No.2) 1993 introducing section 23AD of the ITAA 1936 does not shed much light on its meaning. It relevantly states: | Detailed Reasoning - Use of the regulations in the future: Proposed new section 23AD will exempt from income tax the pay and allowances of ADF personnel who have a certificate from the Chief of Defence Force (CDF) stating that they are on eligible duty (duty as, or under, an attache at an Australian embassy or legation is not eligible for the exemption). The proposed section will serve the same function as existing section 23AC but will enable the Income Tax Regulations to prescribe the service eligible for the concession... (Emphasis added.) However, the Explanatory Memorandum which accompanied the Income Tax Assessment Bill 1965 introducing section 23AC of the ITAA 1936, a cognate provision, is more helpful. It relevantly states: Clause 8 : Exemption of Pay and Allowances of Members of the Defence Force serving in Special Areas The purpose of this clause is to provide an exemption from income tax in respect of pay and allowances earned by members of the Defence Force... Sub-section (1.) of the proposed section 23AC is the operative provision. It provides that the pay and allowances earned by a member of the Defence Force, i.e ., the Naval Forces, the Military Forces, and the Air Force , during a period of special service are exempt from income tax. (Emphasis added.) Accordingly, a 'member of the Defence Force' in section 23AD of the ITAA 1936 is confined to those appointed or enlisted as members of the Australian Navy, Army and Air Forces. This interpretation is broadly consistent with the definition of 'defence member' in section 3 of the Defence Force Discipline Act 1982 (DFDA 1982). You were employed by Company A and worked as a Fuel Trainer in Country A. Your employer was contracted by an international company. At the particular base where you worked, the fuel for all aircrafts was delivered by Company A. You worked side by side with the ADF personnel. Your income in Country A was equivalent to the earnings of ADF personnel who were working in Country A. Although you worked side by side with the ADF personnel and your foreign income was equivalent to the earnings of ADF personnel who were working in Country A, you were not appointed or enlisted as a member of the Australian Navy, Army and Air Forces. Accordingly, you are not a 'member of the Defence Force' within subsection 23AD(1) of the ITAA 1936. Therefore, your foreign employment income is not exempt from tax pursuant to section 23AD of the ITAA 1936. Section 23AG of the ITAA 1936 Generally, section 23AG of the ITAA 1936 provides that the foreign earnings of an Australian resident derived during a continuous period of not less than 91 days employment in a foreign country will be exempt from tax in Australia. However, subsection 23AG(1AA) of the ITAA 1936 provides that those foreign earnings will not be exempt under section 23AG of the ITAA 1936 unless the continuous period of foreign service is directly attributable to any of the following: (a) the delivery of Australian official development assistance by the taxpayer's employer; (b) the activities of the taxpayer's employer in operating a public fund covered by the deductible gift recipient categories overseas aid fund and developed country disaster relief fund; (c) the activities of the taxpayer's employer where they are a charitable institution or religious institution which is income tax exempt because they are a prescribed institution located outside Australia or pursuing objectives principally outside Australia; (d) the taxpayer's deployment outside Australia as a member of a disciplined force of Australia by the Commonwealth, a State or a Territory or an authority thereof; or (e) an activity of a kind specified in the regulations. Your employer, Company A is part of a group which has its headquarters overseas. Your employer was not: · delivering official development assistance; · endorsed as an overseas aid fund or developing country disaster relief fund; · a prescribed institution being exempt from income tax in Australia; or · conducting an activity of a kind specified in the regulations. Further, you were not deployed outside Australia by the Commonwealth, a State or a Territory or an authority of the Commonwealth, a State or a Territory. Accordingly, your foreign employment income is not attributable to any of the activities listed in subsection 23AG(1AA) of the ITAA 1936. Therefore, your foreign employment income is not exempt from tax pursuant to section 23AD of the ITAA 1936.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts and circumstances | You were a resident of Australia for tax purposes for the years ended 30 June 2010 and 30 June 2011. | You worked as a Fuel Trainer in Country A. Your job was to instruct new company employees in the correct procedures for receipt, storage, testing and delivery methods of fuel and assisting in the hot refuelling operations of aircraft. | Your "roster was three months on and one month off".