Private ruling: Exempt foreign earnings
Published: February 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are your foreign earnings derived from a period of sick leave resulting from an illness that occurred while deployed overseas as a member of a disciplined force, exempt from income tax? | A1: No

Relevant facts and circumstances: You were deployed with a disciplined force to an overseas country. Your deployment was for more than 91 days. You became ill while on deployment and returned to Australia on paid sick leave. You were deployed under Determination xx with the disciplined force. This determination does not accrue sick leave.

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(1AA) | Income Tax Assessment Act 1936 Subsection 23AG(2) | Income Tax Assessment Act 1936 Subsection 23AG(6)

Reasons for decision: Summary: Subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that foreign earnings are exempt from income tax where all of the following requirements are satisfied: · you are a resident of Australia and a natural person, · you are engaged in foreign service, · the foreign service is for a continuous period of at least 91 days, · you derive foreign earnings from that foreign service, · the foreign service is directly attributable to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936, and · the foreign earnings are not exempt from income tax in the foreign country only because of one of the reasons listed in subsection 23AG(2) of the ITAA 1936. Subsection 23AG(6) goes on to advise that a period which a person is engaged in foreign service includes any period during which the person is, in accordance with the terms and conditions of that service: (a) absent on recreational leave other than : (i) leave wholly or partly attributable to to a period of service or employment other than that foreign service; (ii) long service leave, furlough, extended leave or leave of a similar kind (however described); (iii) leave without pay or reduced pay; or (b) absent from work because of accident or illness. In your case, you were deployed overseas as part of a disciplined force under Determination xx. The terms and conditions of Determination xx do not allow for sick leave. So although you were on sick leave, you were not absent from work in accordance with the terms and conditions associated with the determination under which you were deployed. Accordingly, your income from a period of sick leave taken while you are in Australia would not be covered by subsection 23AG(6) of the ITAA 1936. | Detailed Reasoning - Tax Determination 2013/18: TD 2013/18 considers the assessability of foreign earnings derived by Australian Defence Force (ADF) members from a period of leave as a result of an accident or illness that occurred while deployed overseas as a member of a disciplined force. This TD is specific to ADF members and includes sick leave. In your case, you were deployed under Determination xx which does not allow for sick leave. Accordingly, your circumstances can be distinguished from TD 2013/18 as ADF members accrued sick leave as part of their deployment where as your deployment under Determination xx did not allow for sick leave to be accrued. | Detailed Reasoning - Conclusion: Your income for the period you have been on leave relating to your illness is not exempt under section 23AG of the ITAA 1936.