Private ruling: Exempt foreign income
Date of advice: 26 September 2018
Published: November 2018
Ruling period: Year ended 30 June 2018.
Date scheme commenced: 1 July 2017.

Ruling: Q1: Is the foreign income that you derived from providing service on an approved project in XYZ exempt from income tax in Australia under section 23AF of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes

Relevant facts and circumstances: You are an Australian resident for tax purposes. You are a consultant and a sole trader. An entity of Country Y contracted your services as a supervisor for a project. You worked alongside Company A, an Australian company that has been contracted to work on the project. You were engaged for consultancy, supervision and engineering services while Company A was contracted for construction. Company A applied for and was granted approved project status for the purposes of section 23AF. You worked on the said approved overseas projects. You were engaged on a qualifying service on an approved overseas project for a continuous period of at least 91 days. You completed the full term work and 100% of billed service was done in Country Y. You are liable to pay income tax in Country Y. There is no double tax agreement between Australia and Country Y.

Relevant legislative provisions: Income Tax Assessment Act 1936 s ection 23AF

Reasons for decision: Summary: Section 23AF of the Income Tax Assessment Act 1936 (ITAA 1936) provides that where an Australian resident has been engaged on a qualifying service on a particular approved project for a continuous period of not less than 91 days, any eligible foreign remuneration derived by the person that is attributable to the qualifying service is exempt from tax. Qualifying service includes time spent outside Australia working on the project, reasonable travel time between Australia and the project, absences due to accident or illness while engaged on qualifying service, and time spent on leave which accrued during the qualifying service (subsection 23AF(3) of the ITAA 1936). All income directly attributable to qualifying service by the taxpayer on an approved project (for example, salary, wages, commission, bonuses, allowances, contractual payments and payments for recreation leave entitlements which accrue during the relevant period) is eligible for the exemption (subsection 23AF(18) of the ITAA 1936). However, section 23AF of the ITAA 1936 does not exempt excluded income. Subsection 23AF(17) of the ITAA 1936 provides income is excluded income if the income is exempt under section 23AG of the ITAA 1936 and exempt from tax in the overseas country. Your income is not exempted under section 23AG and not exempted from tax in Country Y. Therefore, as you are engaged on a qualifying service on an approved overseas project for a continuous period of at least 91 days, the foreign remuneration you derived from the approved overseas project is exempt from tax pursuant to section 23AF of the ITAA 1936.