Exempt foreign employment income

Australian residents working overseas, need to work out if your foreign employment income is exempt from income tax.

On this page

• Foreign income exempt from tax
• Foreign service straddling income years
• How exempt foreign employment income affects your tax
• Completing your tax return

Foreign income exempt from tax

If you're an Australian resident for tax purposes working overseas, you pay tax in Australia on your foreign employment income, unless it's exempt from Australian tax.

Your foreign employment income is exempt from tax if all of the following apply:

• you're an Australian resident for tax purposes
• you're engaged in continuous foreign service as an employee for 91 days or more
• your foreign service is directly attributable to any of the following    
  • delivery of Australian Official development assistance by your employer (except if your employer is an Australian government agency)
  • activities of your employer in operating a public fund declared by the Minister to be a developing country relief fund
  • activities of your employer in operating a public fund established and maintained to provide monetary relief to people in a developed foreign country impacted by a disaster (a public disaster relief fund)
  • activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax because it's located outside Australia, or the institution is pursuing objectives outside Australia
  • deployment outside Australia by an Australian government (or authority) as a member of a disciplined force 
• you're not excluded from exemption by the non-exemption conditions

From 1 July 2016, Australian government employees who earn foreign income while delivering Australian Official development assistance (ODA) are not eligible for exemption from Australian income tax on their foreign employment income.

If your foreign service is not directly attributable to these activities, you need to include the foreign employment income in your tax return as assessable income.

You may be entitled to a foreign income tax offset for amounts of foreign tax you have paid.

Australian Official development assistance

Australian Official development assistance (ODA) is assistance delivered through the Australian Government's overseas aid program administered by the Department of Foreign Affairs and Trade (DFAT).

DFAT also contracts aid work to Australian and international entities. As a result, individuals involved in the delivery of Australian ODA can include both Australian Public Service (APS) employees and people who are not APS employees.

Australian government agency

An Australian government agency means:

• the Commonwealth, a state or a territory
• an authority of the Commonwealth or of a state or a territory.

For more information, see List of departments and agenciesExternal Link

Developing country relief fund

A developing country relief fund is a fund established by an organisation solely for the purpose of providing relief to people of a developing country.

The organisation must be an approved organisation as declared by the Minister for Foreign Affairs, and the country must be a developing country as declared by the Minister for Foreign Affairs.

Public disaster relief fund

A public disaster relief fund is a fund established and operated by a public benevolent institution in response to an event recognised as a disaster by the Minister for Foreign Affairs.

If you're unsure if you work for a developing country relief fund or a public disaster relief fund, you should seek advice from your employer.

Prescribed institution exempt from Australian income tax

You may be eligible for exemption if your foreign service is directly attributable to working for a prescribed charitable or religious institution that is exempt from Australian income tax.

These organisations are either located outside Australia or have a physical presence in Australia, but incur their expenditure and pursue their objectives principally outside Australia.

If you're unsure if you work for a prescribed charitable or religious institution, you should seek advice from your employer.

Foreign deployment as a member of disciplined force

You may be eligible for exemption if your foreign service is directly attributable to deployment outside Australia as a member of a disciplined force by the Australian Government or authority.

When we say 'disciplined force', we mean a defence force, including a peacekeeping force, and a police force.

If you obtain civilian employment directly with an international peacekeeping force you are not deployed as a member of a disciplined force by the Australian Government or authority, your income will not be exempt from tax in Australia.

As a member of a defence force, the exemption applies to your deployment outside Australia as part of a non-warlike operation.

As a member of a police force, the exemption applies to you if you are an Australian Federal Police employee deployed on an International Deployment Group mission subject to a Commander's Orders to achieve operational policing outcomes.

Non-exemption conditions

Your foreign employment income is not exempt from Australian tax if you did not have to pay tax in the country where you earn that income because of any of the following:

• a tax treaty with Australia or a law giving effect to a treaty agreement
• the foreign country does not impose tax on employment or personal services income or categorises income of this type as generally exempt
• a law of the foreign country that corresponds to the International Organisations (Privileges and Immunities) Act 1963 or an international agreement to which Australia is a party that deals with either    
  • diplomatic or consular privileges and immunities
  • privileges and immunities for people connected with international organisations, such as the United Nations
• a law of the foreign country that gives effect to an agreement to which Australia is a party, which deals with either    
  • diplomatic or consular privileges and immunities
  • privileges and immunities for people connected with international organisations, such as the United Nations.

Your foreign employment income may still qualify for exemption if it was not taxable in the foreign country for a reason other than, or in addition to, the non-exemption condition reasons. This may be because:

• the amount of income you earned is less than the amount at which you must start paying tax in the foreign country
• the income falls into a special category that the foreign country exempts – for example, payments to visiting aid project workers
• a memorandum of understanding (MOU) exempts the payments – for example, an MOU between Australia and a developing country for Australians to assist that country
• the income you earned includes supplements paid under the Australian Staffing Assistance Scheme (ASAS) paid in Australia for overseas service
• the foreign country levies a tax on employment income but does not have a collection system – for example, it does not have a collection system like the Australian pay as you go (PAYG) withholding system.

Approved overseas projects

Your foreign employment income may also be exempt if it is paid for foreign service in connection with an overseas project approved by Austrade. Information about who can apply for approved project status is on the Austrade websiteExternal Link.

Continuous foreign service

For the exemption from Australian tax to apply, your foreign service must be for a continuous period of 91 days or more.

Any period of absence from foreign service breaks the continuity of your foreign service, unless:

• the absence does not exceed One-sixth of your total period of foreign service or
• the absence still counts as foreign service and so does not break the continuity of foreign service.

The continuous service rules for foreign service are different from the continuous service rules for qualifying service on an approved overseas project.

One-sixth test

Absences that would otherwise break the continuity of your period of service for the purposes of the '91 days or more' requirement can be bridged by applying the one-sixth test.

The one-sixth test means that as long as your absence does not exceed one-sixth of your period of service up to that point, the absence won’t break the continuity of your service.

Find out about Foreign service straddling income years