Private ruling: Exemption of certain income derived in respect of approved overseas projects
Date of advice: 18 March 2016
Published: May 2016
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2017 | Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Question and Answer | Is your employment income derived from an approved overseas project exempt income in Australia under section 23AF of the Income Tax Assessment Act 1936 (ITAA 1936)? | Yes

Relevant facts and circumstances: You are employed as a contractor by Company X to perform personal services in connection with an approved project that is outside Australia. Your employer has applied for Section 23AF tax relief through the Australian Trade Commission which was granted until 31 October 20XX and provided a project reference number. Your employment is subject to a cyclical arrangement whereby you work for a period of 8 weeks in situ of the approved overseas project, followed by an off-duty period of 4 weeks. The 4 week off-duty period is revisable subject to operational requirements. Your contract requires that you are available for 24 hours a day. Your average working day consists of a XX hour shift. You are also required to be available for 24 hours per day whilst on rotation. During the off-duty period you may still be required to take phone calls, reply to work related emails and other administration related matters The host nation of the approved overseas project will tax your employment income under its domestic law.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 23AF | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-15 | Income Tax Assessment Act 1997 section 11-15

Reasons for decision: Summary: Section 23AF of the ITAA 1936 provides that where an Australian resident has been engaged on a qualifying service on an approved project for a continuous 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 eg, salary, wages, commissions, 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). Where the overseas service is performed under a cyclical arrangement, the whole of the work cycle (times on and off) may be regarded as qualifying service where leave taken in circumstances similar to those described in Taxation Ruling IT 2015. Taxation 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 the designated country followed by a period of 4 weeks of R&R - of which you spend some time in Australia. The terms of your contract align to the terms of engagement described in Taxation Ruling IT 2015.