The Federation's response :-
The feds are aware of draft determination TD 2002/D3 which they received early April and they submitted a response on the 23 April 2002. It reads as follows.
" Thank you for the opportunity to comment on the proposed Draft Taxation Determination covering certain aspects of the section 23 AG exemption, initially received on 28 March with a slightly amended copy , titled TD 2002/D3, received on 5 April 2002.
Due to the limited time available we have only been able to consult with only a small number of constituents who work for overseas airlines. Notwithstanding this we make the following comments on the proposed Draft Taxation Determination.
Background
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The Federation understands that AG23 provides :
Where a resident , being a natural person , has been engaged in foreign service for a continuous period of not less than 91 days , any foreign earnings derived by the person from that foreign service is exempt from tax.
Current "General" Interpretation
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To date it appears that under TR96/15 paragraph 11(b) the continuity of foreign service has not been deemed to have been broken where the periods spent in Australia are consistent with the overseas contractual arrangements. It is our understanding that this has generally meant " compulsory lay off/over days ", "rostered days off " or "designated duty free days ", "available days " or "grey days ", "recreation leave ", and "sick leave " spent in Australia or another country does not break the continuity of foreign service.
TR96/15 paragraphs 11(a) and 11(c) also provides that the continuity of foreign service is not broken by business trips to Australia and compassionate leave in Australia.
Purpose of proposed Draft Taxation Determination (TD 2002/D3 )
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It appears that the primary purpose of the proposed Draft Taxation Determination (TD 2002/D3 ) is to apply an additional or overriding "reasonableness test " to the amount of days spent in Australia under the TR96/15 paragraph 11(b). In particular by adding the sentence:
Where such breaks are used by the person to visit Australia or another foreign country they must not be excessive by comparison with the scheduled period of foreign service.
Areas of Concern
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The major areas of concern in relation to the proposed Draft Taxation Determination (TD 2002/D3 ) are:
1. The " reasonableness test " as it is currently defined is too broad and
subjective. In essence, what is defined as " too excessive by comparison
with the scheduled period of foreign service " appears to be open to
numerous interpretations.
2. It also appears that paragraph 3 of the proposed Draft Taxation
Determination (TD 2002/D3 ) suggests that " available days " or " grey
days " may not break the continuity of employment subject to contractual
arrangements but then in the example at paragraph 7 suggests that
" available days " spent in Australia do not form part of foreign service.
The issue of where " available days " are spent appears ambiguous.
Issues for Consideration
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There is a broad range of contractual arrangements or options currently entered into by and/or available to Federation members flying for overseas airlines. It should also be noted that many of these pilots maintain a residence overseas ( not just a residence in Australia ).
While it is difficult ( perhaps impossible ) to develop or describe the standard or usual arrangements, during consultation with a small number of our overseas members the following example of the type of arrangements pilots at Korean Air was provided:
" Under our contract we are required to provide 20 days of continuous duty
and then receive 9 days off. We are also entitled to 24 days pa annual
leave. This can be applied for at any time, i.e. monthly, annually, never.
At the completion of our duty period we are entitled to stay in Korea at our
expense or travel to any other place. Our movement is unrestricted either
commercially or by regulation. All foreign pilots working for Korean Air are
registered as " Resident Aliens ", are subject to Korean tax and obliged to
furnish a Korean taxation return. For taxation purposes we deal with a
Taxation Specialist ( SAMIL Taxpayers Association ) that is a division of
Price Waterhouse Korea set up and appointed by the Korean Taxation
Authorities for the specific purpose of handling expatriate taxation returns.
The Korean Taxation authorities actively encourage the use of this conduit.
The other salient fact is that there does exist between Korea and Australia,
a Double Taxation Agreement, which I understand releases a worker from
taxation obligations in his country provided he meets all his taxation
obligations in the income source country. "
We understand that currently these pilots would be exempt from tax in Australia and based on our reading of the proposed Draft Taxation Determination (TD 2002/D3 ) assume that this would remain the case.
It should also be noted that a number of Australian pilots take short-term overseas contracts from time to time. These contracts vary greatly in duration however we assume that where these pilots meet the requirements of AG23 (foreign service of not less than 91 days ) that the component of income earned under the overseas contract would be viewed as exempt from Australian tax.
Other factors that emerged in discussions with individual overseas pilot members regarding the proposed Draft Taxation Determination (TD 2002/D3 ) included:
~ Some are required to live in the country in which the airline is based and
as a result have provisions for their families to visit them there ;
~ A number have been promoted/appointed to full time management,
supervisory and instructing roles. They have desks, business cards,
formal reporting roles within the foreign airline structure and are required
to fit any days off within their management work requirements. Examples
include, Team Leader- Audit Business Unit, Assistant Chief Pilot, Auditor-
Audit Business Unit, and Simulator Instructor;
~ When travelling home these pilots are on the GD and formally part of the
crew. This is especially important since Sept 11. For example, they can't
drink alcohol because they are deemed part of the "chain of command ";
~ They often keep " living " things at the foreign airline base, such as full
sets of clothes for each season. Casual wear for days off there etc;
~ They often have local ISPs, not just Australian ones;
~ They have no "right" to travel home on any given day. Their "official" days
off are only 6 days per month. Any days over this are purely optional and
can be paid out; and
~ They are upgraded under the training system in the same way as the
"local" pilots ( those who are citizens of the airlines base ).
Conclusion
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Overall in relation to the proposed Draft Taxation Determination (TD 2002/D3) the Federation would seek :
1. Clarification of what would be regarded by the ATO as "excessive" breaks
used by the person to visit Australia or another foreign country by
comparison with the scheduled period of foreign service;and
2. Clarification of when "available days" or "grey days" spent in Australia as
per their contractual arrangements are deemed to break continuity of
foreign service or not break continuity of foreign service.
This would assist and hopefully provide certainty to our members flying for an overseas carrier while maintaining a residence in Australia.
End.