Published: May 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Question and answer: | Is your employment income derived from working in Country T exempt income in Australia under section 23AF of the Income Tax Assessment Act 1936 (ITAA 1936)? | Yes.

Relevant facts and circumstances: You are an Australian resident for taxation purposes. You are employed as a contractor for an organisation which in turn is contracted to provide security to Australian interests in Country T. You have supplied a letter addressed to your employer from the Australian Trade Commission (Austrade) confirming that the project you are employed on has been granted an Approved Project status. Your employment is subject to a cyclical arrangement whereby you work for a number of weeks in Country T followed by a number of weeks off as rest and recreation (R&R). You will not take any breaks outside this cyclical arrangement. You work 14 hours a day in a 7 day working week. Although during your R&R spent in Australia you are required to take certain telephone calls and reply to work related emails - you will not undertake any formal work related duties. Country T taxes employment income under its domestic law. There is no tax treaty between Australia and Country T.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5(2), | Income Tax Assessment Act 1997 subsection 6-15(2), | Income Tax Assessment Act 1997 section 11-15, | Income Tax Assessment Act 1936 section 23AF, | Income Tax Assessment Act 1936 subsection 23AF(1), | Income Tax Assessment Act 1936 subsection 23AF(3), | Income Tax Assessment Act 1936 subsection 23AF(4), | Income Tax Assessment Act 1936 subsection 23AF(9), | Income Tax Assessment Act 1936 subsection 23AF(11), | Income Tax Assessment Act 1936 subsection 23AF(17) and | Income Tax Assessment Act 1936 subsection 23AF(18).

Reasons for decision: Summary: Section 23AF of the 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 ITAA36 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. Where the overseas service is performed under a cyclical arrangement, the whole of the work cycle (times on and off) may be regarded as a qualifying service where leave taken in circumstances similar to those described in Taxation Ruling No. IT 2015, Section 23AF: Determination of Period of Qualifying Service . Tax Ruling IT 2015 considers employees who had the following terms of engagement: • 12-hour days • 7-day working week • Engaged in uninterrupted cycles of five weeks on site and five weeks leave • Taking into account time off, over a period of 52 weeks average weekly hours would be in excess of 40 hours per week • During the periods of leave in Australia, the employee is not required to attend the company's offices, but may be required to return to work at any time if required, and • No further entitlement to any additional annual leave. Your employment is subject to a cyclical arrangement whereby you work for a period of 8 weeks in Country T followed by a period of 4 weeks of R&R - of which you spend some time in Australia. Your circumstances are considered to be similar to that outlined in IT 2015. Your average weekly hours worked would be in excess of 40 hours per week. The rotational time off compensates you for the long period worked. Therefore, the leave that accrues in respect of a period you were engaged on an approved project forms part of your qualifying service. As you are an Australian resident who provides service on an approved project in Country T for a continuous period of not less than 91 days, and your income is liable to income tax in Country T, you satisfy the conditions under section 23AF of the ITAA 1936. Accordingly, the income you derive from Country T is exempt from income tax in Australia under section 23AF of the ITAA 1936.