Private ruling: International - continuous foreign service and sick leave
Date of advice: 18 June 2015
Published: June 2015
Ruling period: 1 July 2013 to 30 June 2014

Ruling: Questions and answers | Can sick leave taken, while in Australia but still on deployment, count as exempt Foreign Service under section 23AG of the Income Tax Assessment Act 1936 ? | Yes.

Relevant facts and circumstances: You are deployed to an overseas posting. Your deployment directive notes that the relevant Industry Instruments (or Agreements) and any determinations (made under the Act) govern the terms and conditions that apply while you are assigned to duties within Australia and its external territories. The deployment directive also states your assignment may be revoked or suspended at any time. Whilst working in Australia, your working terms and conditions are covered by an EA. Whilst deployed overseas, your working terms and conditions are covered by a determination. The determination states that unless otherwise specified within the determination, the EA ceases to apply to an appointee for the duration of their coverage of the determination. The determination allows for Overseas Personal/Cares Leave. The determination states that Overseas Personal/Cares Leave may be granted where the appointee is not fit for work due to illness or injury. The determination provides that where additional Overseas Personal/Cares Leave in excess of the amount provided for under the determination, subject to the approval of the Delegate the Appointee may be required to return to Australia and utilise relevant EA entitlements. The Human Resource Policy on the determination states that where an appointee is repatriated due to personal illness, upon immediate return to Australia, they will cease being covered under Determination 1 and will be covered by the relevant EA and utilise any relevant frozen entitlements. After you had completed X, less than 90, days service you became ill and as a result of agreeing with medical advice, flew back to Australia; initially for less than 5 days to seek medical treatment. Subsequent medical advice received was that you should not return to the overseas posting for about a month. A Medical Form was completed and submitted to the relevant authority(s). You were not provided with written notification that your assignment had been cancelled, revoked and or suspended. In Australia you utilised EA sick leave. You were not assigned duties in Australia whilst on or after sick leave. When you returned to your Foreign Service you were advised that because of your month absence, due to illness, you would have to restart your 91 days for tax exemption and as a consequence your first X days of deployment would be fully taxable.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 23AG(1) | Income Tax Assessment Act 1936 subsection 23AG(6)

Reasons for decision: Summary: Under subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) it states; Where a resident, being a natural person, has been engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived by the person from that foreign service are exempt from tax. Subsection 23AG(6) of the ITAA 1936; the extended meaning of 'engaged in foreign services' and provides that; For the purposes of this section, a 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; (b) absent from work because of accident or illness. Taxation Determination TD 2012/8 states; A period during which a person is engaged in Foreign Service for the purpose of 23AG of the Income Tax Assessment Act 1936 includes temporary absence from that service if, and only if, the absence is within the scheduled period of Foreign Service and is both; • In accordance with the terms and conditions of the foreign service (that is, the absence is permitted by the employer, whether in an employment contract or under a separate arrangement); and • For any of the following reasons; • Because of an accident or illness of the taxpayer; | Detailed Reasoning - Application to your circumstances: Your absence was within the scheduled period of Foreign Service which was permitted by your employer and was due to illness As you meet the condition set out in subsection 23AG(6) of the ITAA 1936, accordingly, your sick leave taken, while in Australia, counts as Foreign Service under section 23AG of the ITAA 1936 and is exempt from income tax.