Private ruling: Foreign exempt income
Published: June 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the salary and allowances you earned while employed overseas and on sick leave in Australia exempt from income tax in Australia? | A1: No

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You were employed by an Australia Government Department. You were deployed to an overseas country with the intention to work in that overseas country for a continuous period in excess of 91 days. During your foreign service you became ill and it was necessary to be transferred back to Australia. You were permitted one week of sick leave on your return to Australia. Following your sick leave, the deployment arrangement was ended. At this time you returned to your regular position and performed restricted duties there.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 23AG

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 were engaged in foreign service for a continuous period of at least 91 days • you derived 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 • 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. In your case, you are a resident of Australia and a natural person. You were deployed to an overseas country for a period greater than 91 days. Due to illness you returned to Australia after a number of weeks and spent the next week on sick leave. At the conclusion of the sick leave you were unable to resume your deployment and the arrangement that you had to perform service in the overseas country was ended. You then returned to your regular position on restricted duties. Under subsection 23AG(6) of the ITAA 1936 there is an extended meaning to the term "engaged in foreign service". This provides that it includes any period during which the person is, in accordance with the terms and conditions of that service, absent from work because of an accident or illness. In your case, you were absent for work because of illness for the week of sick leave that you had on return to Australia. After this time you were no longer absent from work because of illness that was in accordance with the terms and conditions of the service in which you were engaged. There are no other exceptions that would apply to your circumstances. There are no Commissioner discretions within the legislation to allow an exemption from tax on the foreign service. Accordingly, the salary and allowances that you received for foreign service is not exempt from income tax in Australia.