Class Ruling CR 2006/57
Status: legally binding
Date of effect: 1 April 2006

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant provision(s) 2. The relevant provision dealt with in this Ruling is section 23AF of the Income Tax Assessment Act 1936 (ITAA 1936). Class of entities 3. The class of entities to which this Ruling applies are: who have been employed by JML to the United Arab Emirates (UAE) on approved projects titled: 4. Those deployed as described in paragraph 3 of this Ruling to whom this Ruling applies will be collectively referred to in this Ruling as JML employees. The approved projects described in paragraph 3 of this Ruling will be collectively referred to in this Ruling as projects. 5. JML employees remain Australian residents throughout the period of deployment. 6. JML employees include those employees who while employed on the approved project return to Australia for a period during which they utilise leave that has wholly accrued from their service in UAE. 7. The class of entities does not include JML employees: Qualifications 8. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 9. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 36 of this Ruling. 10. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 11. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Class of entities or scheme: 3. The class of entities to which this Ruling applies are: who have been employed by JML to the United Arab Emirates (UAE) on approved projects titled: 4. Those deployed as described in paragraph 3 of this Ruling to whom this Ruling applies will be collectively referred to in this Ruling as JML employees. The approved projects described in paragraph 3 of this Ruling will be collectively referred to in this Ruling as projects. 5. JML employees remain Australian residents throughout the period of deployment. 6. JML employees include those employees who while employed on the approved project return to Australia for a period during which they utilise leave that has wholly accrued from their service in UAE. 7. The class of entities does not include JML employees: | Qualifications: 8. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 9. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 36 of this Ruling. 10. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 11. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: 12. This Ruling applies from 1 April 2006. However, this Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of this Ruling. Furthermore, the Ruling only applies to the extent that: 13. If this Class Ruling is inconsistent with a later public or private ruling, the relevant class of entities may rely on either ruling which applies to them (item 1 of subsection 357-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)). 14. If this Class Ruling is inconsistent with an earlier private ruling, the private ruling is taken not to have been made if, when the Class Ruling is made, the following two conditions are met: 15. If the above two conditions do not apply, the relevant class of entities may rely on either ruling which applies to them (item 3 of subsection 357-75(1) of Schedule 1 to the TAA). 16. The scheme that is the subject of the Ruling is described below. This description is based on the following documents which are attached to the file record maintained by the Australian Taxation Office for this Ruling. These documents, or relevant parts of them, as the case may be, form part of and are to be read with this description. The relevant documents or parts of documents incorporated into this description of the scheme are: 17. Employees of JML perform personal services on the projects in the UAE. 18. The company, JML Engineered Facades Pty Limited is an Australian company which was successful in tendering for the projects in the UAE. 19. Each project has a separate contract representing a stage of completion of the entire development. These stages will be completed concurrently. 20. The 3 projects have been granted 'approved project status' by the Minister for Trade or the Minister's delegate under subsections 23AF(11) to (14) of the ITAA 1936. 21. The JML employees will be employed in the UAE for a period not less than 91 days. 22. The period of employment in the UAE is a minimum period of 12 months from the time the individual actually goes to Dubai. The contract will be revised after this date subject to progress on the projects. 23. JML employees employed to perform duties under the projects will comprise two categories: 24. The remuneration for general employees of JML takes the form of an annual salary entitlement and the payment of an accommodation allowance. The salary and allowance will be paid into the employee's nominated account on a monthly basis. 25. A bonus will be paid to a general employee upon completion of the 12 month term of engagement. This will be prorated monthly for further service should the project be extended beyond the initial term of 12 months. 26. The accommodation allowance will be paid while the general employee is on leave accrued during the deployment period. 27. During the period of employment on the project general employees will accrue 20 days annual recreation leave. 28. While engaged in the UAE the leave entitlement for general employees can only be used for a maximum period of 7 days for recreational leave back to Australia and subsequent return to Dubai. This leave will allow employees to return to Australia to visit family and relations. This recreation leave will only be approved after a minimum of 91 days continuous service. 29. No work will be undertaken during recreational leave in Australia. 30. The remuneration for Project specific employees takes the form of an annual salary entitlement and the payment of an accommodation allowance. The salary and allowance will be paid into the employee's nominated account on a monthly basis. 31. A 'handcuff' bonus will be paid to project specific employees upon completion of the 12 month term of engagement. The bonus does not accrue monthly and will not be paid upon early termination whether involuntary or voluntary. 32. During the period of employment on the projects, project specific employees are not entitled to annual recreation leave. 33. No other breaks will be taken by JML employees in the UAE apart from a weekly day off and any rostered days. 34. The only personnel travelling outside the UAE in relation to this project will include the design manager who will travel to the Philippines to check on the drafting company engaged on the project. The project director will travel to India to source labour. 35. The employees do not pay tax on this income in the UAE. 36. The UAE does not impose income tax on income derived in the capacity of an employee; income from personal service or similar income. 37. The income referred to at paragraphs 24 to 26, 30 and 31 of this Ruling, derived by JML employees described in paragraphs 3 to 6 of this Ruling who work in the UAE on the projects, is exempt from tax under subsection 23AF(1) of the ITAA 1936 where: 38. Where the income is exempt from tax under paragraph 37 of this Ruling, the income is 'eligible foreign remuneration' of the employees under subsection 23AF(18) of the ITAA 1936 and is taken into account in calculating the Australian tax on other assessable income derived by the employee (subsection 23AF(17A) of the ITAA 1936).

Ruling: 37. The income referred to at paragraphs 24 to 26, 30 and 31 of this Ruling, derived by JML employees described in paragraphs 3 to 6 of this Ruling who work in the UAE on the projects, is exempt from tax under subsection 23AF(1) of the ITAA 1936 where: 38. Where the income is exempt from tax under paragraph 37 of this Ruling, the income is 'eligible foreign remuneration' of the employees under subsection 23AF(18) of the ITAA 1936 and is taken into account in calculating the Australian tax on other assessable income derived by the employee (subsection 23AF(17A) of the ITAA 1936). | Example: 39. In the 2005-2006 income year, an employee derives the following types of income : Assume that the employee has appropriate private patient hospital cover for Medicare levy surcharge purposes . The total amount of Australian tax payable will be calculated with reference to the following formula : (Notional gross tax/Notional gross taxable income) ? Other taxable income Step 1 The employee's notional gross taxable income is $60,000 ([$45,000 + $15,100 - $100) . Step 2 The notional gross tax is $14,760 (the normal Australian income tax and Medicare levy payable on a taxable income of $60,000) . Step 3 The other taxable income is $45,000 (Australian employment income) . Step 4 The Australian tax payable (including Medicare levy) on the employee's Australian income is : ($14,760/$60,000) x $45,000 = $11,070 Commissioner of Taxation 21 June 2006


Appendix: 40. A payment or other benefit received by a taxpayer is assessable income if it is: | Ordinary income: 41. Subsection 6-5(1) of the ITAA 1997 provides that assessable income includes income according to ordinary concepts (ordinary income). 42. Payments made by JML to the employees are considered to be ordinary income. 43. Subsection 6-5(2) of the ITAA 1997 further provides that the assessable income of an Australian resident will include the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. 44. The determination of a person's residency status depends on their own circumstances and is a determination made in relation to each year of income. For further information, see Taxation Ruling IT 2650. This Ruling only applies to the class of entities who remain Australian residents for taxation purposes during the posting period in the UAE. 45. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income. Exempt income is that which is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law (section 6-20 of the ITAA 1997). 46. Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23AF of the ITAA 1936. 47. Section 23AF of the ITAA 1936 provides that where a natural person is engaged on 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 from that qualifying service is exempt from tax. | Eligible foreign remuneration: 48. Subsection 23AF(18) of the ITAA 1936 defines 'eligible foreign remuneration'. The definition refers to income that is directly attributable to qualifying service by a resident individual on an approved project. The income referred to in paragraphs 24 to 26, 30 and 31 is income derived under a contract that is wholly or substantially for the personal services of the employee. 49. Subsection 23AF(17) of the ITAA 1936 excludes the following types of income from being eligible foreign remuneration: The payments to the employees described in paragraphs 24 to 26, 30 and 31 of this Ruling are not income of the type excluded by subsection 23AF(17) of the ITAA 1936. 50. The income referred to in paragraphs 24 to 26, 30 and 31 of this Ruling derived by the employees is eligible foreign remuneration. 51. If, however, an employee is remunerated at above the appropriate market rate for services on the project, the employee should seek advice from a taxation advisor or the Tax Office. | Qualifying service: 52. Subsection 23AF(3) of the ITAA 1936 provides that a person shall be taken to be engaged on qualifying service on an approved project during any of the following periods during which the person: Employees working on the project are taken to be engaged in qualifying service. If the period of continuous qualifying service completed by the employee is less than 91 days, the income is not exempt under section 23AF of the ITAA 1936. | Breaks in continuity of qualifying service: 53. If during the period of qualifying service, a person returns to Australia for an intervening period of short duration (and is therefore not present in a foreign location), the person may still remain eligible for exemption from Australian tax on the income derived from the approved project. 54. Provided that the number of intervening days spent in Australia does not exceed one-sixth of the number of days engaged on qualifying service on the approved project, the continuity of the period of qualifying service will not be broken. However, the number of these intervening days spent in Australia does not count as days engaged on qualifying service on the approved project (see subsection 23AF(8) of the ITAA 1936). | Unforeseen circumstances: 55. A period of qualifying service may be deemed to have been met even though a person ceased to be engaged on an approved project prior to completing 91 continuous days of service because of unforeseen circumstances. The period of qualifying service of that person shall be deemed to include the period during which the person would, in the opinion of the Commissioner, have continued to be engaged on qualifying service on the approved project but for the consequences of those unforeseen circumstances (subsection 23AF(6) of the ITAA 1936). 56. However, only the eligible foreign remuneration derived from the period of qualifying service completed before the cessation due to unforeseen circumstances is eligible for exemption under section 23AF of the ITAA 1936. | Substituted person: 57. If a person (the substituted person) replaces another person engaged by JML whose qualifying service was prematurely terminated for unforeseen reasons, special rules apply to work out the qualifying service period of the substituted person. 58. The substituted person's period of qualifying service will include the period of the person originally assigned to the project and the period in which they were actually engaged on the project. If the sum of these periods is not less than 91 days, the substituted person will be eligible for the exemption (subsection 23AF(7) of the ITAA 1936). 59. It is only the eligible foreign remuneration that the substituted person derives from qualifying service that commenced from the time when the substitution commences that will be exempt. | Exempt 23AF income and other income: 60. The eligible foreign remuneration of the employees that are exempt from Australian tax under section 23AF of the ITAA 1936 are nevertheless taken into account in calculating the Australian tax on other assessable income derived by the employee (subsection 23AF(17A) of the ITAA 1936). 61. Tax on other assessable income will be calculated by applying to the non-exempt income (for example Australian employment or investment income), the notional average rate of tax payable on the sum of exempt income and non-exempt income. 62. In calculating these amounts, any deductions that relate to the exempt income are allowed as if the exempt income was assessable income. That is, expenses which relate directly to earning income in the UAE are deductible from exempt income.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | Appendix 2: Detailed contents list | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, we must apply the law to you in the way set out in the ruling (or in a way that is more favourable for you if we are satisfied that the ruling is incorrect and disadvantages you, and we are not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | Appendix 2 - Detailed contents list: 63. The following is a detailed contents list for this Ruling: | Not previously issued as a draft


Related rulings: IT 2650
Legislative references: ITAA 1936 23AF ITAA 1936 23AF(1) ITAA 1936 23AF(3) ITAA 1936 23AF(6) ITAA 1936 23AF(7) ITAA 1936 23AF(8) ITAA 1936 23AF(11) ITAA 1936 23AF(12) ITAA 1936 23AF(13) ITAA 1936 23AF(14) ITAA 1936 23AF(17) ITAA 1936 23AF(17A) ITAA 1936 23AF(18) ITAA 1936 23AG ITAA 1997 6-5(1) ITAA 1997 6-5(2) ITAA 1997 6-15(2) ITAA 1997 6-20 ITAA 1997 11-15 TAA 1953 TAA 1953 Sch 1 357-75(1) Copyright Act 1968
Subject references: approved overseas project exempt income foreign income foreign income deductions foreign source income international tax overseas countries overseas employees overseas tax laws residence of individuals United Arab Emirates