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    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    Exempt foreign employment income and the flood levy

    The amount of tax you must pay when you earn exempt foreign employment income includes a component equivalent to the flood levy and the Medicare levy.

    If you have foreign employment income that is exempt from Australian tax, the component equivalent to the flood levy and the Medicare levy is calculated based on an average tax rate on income that includes both your exempt foreign employment income and your taxable income.

    Example 4

    In the 2011-12 income year, Sansa (who has appropriate private health cover) derives the following types of income:

    • Australian employment income of $40,300
    • exempt foreign employment income of $50,100.
    • She also has:
    • allowable deductions against Australian income of $300
    • expenses directly related to exempt foreign employment income of $100.

    While Sansa's taxable income is $40,000, and below the taxable income threshold at which the flood levy and the Medicare levy usually apply, Sansa must include the exempt foreign employment income to determine the total tax liability. She must pay an amount equivalent to the flood levy and the Medicare levy because her notional gross taxable income is $90,000.

    The total amount of Australian tax payable will be calculated using the following formula:

    (Notional gross tax / Notional gross taxable income) x Other taxable income

    Step 1

    Sansa's notional gross taxable income is

    ($40,300 - $300) + ($50,100 - $100)

    = $90,000

    Step 2

    The notional gross tax is $22,800 (the Australian income tax, Medicare levy and flood levy payable on a taxable income of $90,000).

    Step 3

    The other taxable income is $40,000 (Australian employment income).

    Step 4

    The Australian tax payable (including an amount for the flood levy and the Medicare levy) on Sansa's Australian income is:

    ($22,800 / $90,000) x $40,000 = $10,133.33

    The notice of assessment will show this tax liability as tax of $9,444.44, Medicare levy of $600 and flood levy of $88.89.

    End of example
      Last modified: 21 Sep 2016QC 22325