Reduction of PAYG withholding amounts to take into account foreign tax

If your employee's foreign earnings are assessable in Australia and you withhold and pay tax to a foreign government on their behalf, you should reduce the PAYG withholding amount that would normally be withheld in Australia by the Australian dollar equivalent of the amount of tax withheld and paid to the foreign country.

If the resulting Australian withholding amount is zero or negative, there is no amount to withhold.

Example 7

Norman is an Australian resident who has been sent to work in Papua New Guinea for four months from July 2015. Norman will be paid in local currency, the Papua New Guinea Kina (K), by his Australian employer. He receives K3,850 weekly. You have established that you are required to withhold $598.84 (AUD) for Papua New Guinea income tax.

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

For the purposes of this example, the exchange rate that applies for converting Papua New Guinean kina (K) to Australian dollars (A$) is 2.36.

End of example






Convert the earnings in K to A$:




Calculate the Australian amount to be withheld from the amount calculated at 1, in accordance with the relevant pay as you go withholding tax table:

Amount to be withheld from $1,631



Convert the amount withheld and paid to the foreign country to A$:




Reduce the amount calculated at 2 by the amount calculated at 3:

Amount to be withheld = $405 - $598.84



Round to the nearest dollar


The amount to be withheld for Australian PAYG withholding purposes from the payment of K3,850 is A$0.

    Last modified: 01 Dec 2015QC 22115