Private ruling: Assessability of income
Published: November 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Question and answer: | Is the income you earned in Australia from the date of your discharge from hospital until the expected end date of your overseas deployment exempt from Australian income tax? | Yes.


Relevant legislative provisions: Subsection 23AG(1) of the Income Tax Assessment Act 1936 | Paragraph 23AD(1)(a) of the Income Tax Assessment Act 1936 Subsection 23AD(1) of the Income Tax Assessment Act 1936 | Paragraph 23AD(3)(c) of the Income Tax Assessment Act 1936 Subsection 23AG(7) of the Income Tax Assessment Act 1936 | Paragraph 23AG(6)(b) of the Income Tax Assessment Act 1936 Subsection 23AG(2) of the Income Tax Assessment Act 1936 | Paragraph 23AG(2)(a) of the Income Tax Assessment Act 1936 | Paragraph 23AG(2)(b) of the Income Tax Assessment Act 1936 | Paragraph 23AG(2)(c) of the Income Tax Assessment Act 1936 | Paragraph 23AG(2)(d) of the Income Tax Assessment Act 1936 Section 23AG of the Income Tax Assessment Act 1936

Reasons for decision: Summary: Subsection 23AG(1) of the Income Tax Assessment Act1936 (ITAA 1936), provides that foreign earnings of an Australian resident for taxation purposes derived during a continuous period of foreign service of not less than 91 days in a foreign country are exempt from income tax in Australia. Foreign earnings include income consisting of salary, wages, bonuses or allowances under subsection 23AG(7) of the ITAA 1936. Paragraph 23AG(6)(b) of the ITAA 1936 provides that the period during 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, absent from work because of accident or illness. Members of the Australian organisation are entitled to leave for whatever time is necessary to recuperate from injuries sustained. In your case, you were injured while on deployment to country X, and were on leave after your discharge from hospital. From the day of your discharge to the expected end date of your deployment, is therefore considered foreign service under paragraph 23AG(6)(b) of the ITAA 1936 as you were absent from work due to injuries sustained while on overseas deployment. There is nothing in the legislation to preclude a general exemption under subsection 23AG(1) of the ITAA 1936 from following a specific exemption under another section of the ITAA 1936. Subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG(1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the reasons listed in that subsection. One of the reasons listed is where the income is exempt in the foreign country because of a tax treaty (paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936). There is no tax treaty between Australia and country X. Therefore, paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936 will not apply. As the laws of country X provide for the imposition of income tax and do not generally exempt employment income from income tax, paragraphs 23AG(2)(c) and 23AG(2)(d) of the ITAA 1936 will also not apply. None of the other reasons in subsection 23AG(2) of the ITAA 1936 apply to your situation. You satisfy the conditions for exemption under section 23AG of the ITAA 1936 for the year included in this ruling. Accordingly, the salary and allowances you earned from the day you were discharged from hospital to the expected end of you deployment are exempt from income tax in Australia under subsection 23AG(1) 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: You are an Australian resident for taxation purposes. | You are a member of an Australian Government department. | You were deployed to country X for a set period. | During your deployment you suffered an injury and returned to Australia for hospital treatment. | After a short period you were discharged from hospital, and took leave to recover from your injury. | After a period of recoupment you returned to work. | Your income while actually overseas was exempt from income tax pursuant to another section of the Income Tax Law. | The tax laws of country X provide for the imposition of income tax on employment income and do not generally exempt such income from tax.