Private ruling: Foreign Income Exemption
Published: February 2013
Ruling period: Year ended 30 June 2012. | Year ending 30 June 2013.
Date scheme commenced: 1 July 2011.

Ruling: Question and answer | Is the foreign income you derive from providing service on an approved project overseas exempt from tax in Australia? | Yes.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You are an independent contractor and you have been contracted by a company to provide services to an Australian Embassy overseas. The contract is an approved overseas project and you have provided the relevant project numbers. You are contracted on a cyclical arrangement. Your average weekly hours worked is in excess of 40 hours per week. The weeks off are taken as rest and recuperation leave accrued as a result of your foreign service overseas. You have paid tax overseas. There is no relevant tax treaty.

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

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 overseas for a continuous period of not less than 91 days, and your contract income has tax paid on it overseas, you satisfy the conditions under section 23AF of the ITAA 1936. Accordingly, the income you derive overseas 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.

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