Private ruling: Assessability of your foreign income
Published: May 2015
Ruling period: Year ended 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2014

Ruling: Questions and answers | Is the foreign income you derive from providing service on an approved project in Afghanistan exempt from income tax in Australia? | Yes


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

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. 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 IT 2015. 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 circumstances are similar to that outlined in IT 2015. Your average weekly hours worked is 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 A for a continuous period of not less than 91 days, and your contract income has tax paid on it in Country A, you satisfy the conditions under section 23AF of the ITAA 1936. Accordingly, the income you derive from Country A is exempt from income tax in Australia under section 23AF of the ITAA 1936. | Detailed Reasoning - Note:: Exempt foreign income is taken into account in calculating Australian tax payable on other income derived by the taxpayer. Tax on the non-exempt income is calculated by applying a notional average rate of tax payable on the sum of the exempt and non-exempt income.

Relevant facts: You are an Australian resident for tax purposes. | You are an independent contractor and you have been contracted to provide services to the government of Australia overseas. | The contract between the Australian government and your employer is an approved overseas project. | Your contract period is for a minimum period of 12 months. | You are contracted on a cyclical arrangement that is based on an eight weeks on followed by four weeks off. | Your average weekly hours works is in excess of 40 hours per week. | The four weeks off is taken as rest and recuperation (R & R) leave accrued as a result of your foreign service in Country A. | You spend your R & R leave in Australia and you do not perform any duties at this time. | You have tax paid to the Country A tax authorities, via your employer, based on the gross amount paid to you under your contract. | There is no tax treaty between Australia and Country A.