Foreign employment income and section 23AG - employers

Can you vary the PAYG withholding amounts for your employees?

Yes. We issued a class variation that lets you reduce the Australian PAYG withholding on certain payments by the amount of the foreign tax withheld and paid to the foreign government for that payment.

Example

Norman is an Australian resident working in Papua New Guinea (PNG) for four months from July 2009. His Australian employer pays him in PNG kina (K). He receives K3,850 weekly and pays K462 of this tax in PNG.

Norman:

• has claimed the tax-free threshold for his Australian employment
• is not eligible for any tax offsets
• does not have a Higher Education Loan Program or Student Financial Supplement Scheme debt
• is not entitled to leave loading.

The exchange rate for converting PNG kina to Australian dollars for the purposes of this example is 2.36.

You convert the earnings in K to AU$:

K3,850 / 2.36 = $1,631.36

You work out the Australian amount to be withheld from this amount according to the relevant PAYG withholding tax table:

Amount to be withheld from $1,631.99 = $404

You reduce this amount by the amount to be withheld and paid to the PNG government:

Amount to be withheld and paid to foreign country = K462

Convert this amount to AU$ = K462/2.36

= $195.76

Amount to be withheld = $404 - $195.76 = $208.24

Rounded to the nearest dollar = $208

The amount to be withheld for Australian PAYG withholding purposes from the payment of K3,850 is AU$208.

If you are having trouble meeting your PAYG obligations, email us at withholding@ato.gov.au For more information, refer to: PAYG withholding guide no.10 - withholding variations for payers Tax tables.