Working on an approved overseas project

Your foreign income may be exempt from tax (under section 23AF) if you work on an approved overseas project.

Last updated 25 April 2023

Eligibility

Your income from an approved overseas project is exempt from tax in Australia (under section 23AF of the Income Tax Assessment Act 1936) if you satisfy the following 2 conditions:

you are employed, or perform personal services as a contractor, on an approved overseas project for a continuous period of 91 days or more
your income from working on the project is not excluded by any of the non-exemption conditions.

Your income won't be exempt for working on an approved overseas project (23AF) if it is already exempt from working in foreign service (23AG).

Approved overseas projects

An approved overseas project is a project that is in the national interest and is approved in writing by AustradeExternal Link (Australian Trade and Investment Commission). Austrade should provide a project number to your employer or contractor.

Approved overseas projects include projects that are:

for the design, supply or installation of equipment or facilities
for the construction of works
for the development of an urban area or a regional area
for the development of agriculture
giving advice or assistance for the management or administration of a government department or public utility
in a class of projects approved in writing by the Trade Minister, such as projects for the
- development of natural resources
- supply of agricultural services carried out on behalf of the government, public utility or a corporation owned by the government or operating under government authority
- development, installation, management or administration of medical programs and facilities.

Continuous period of service

To be eligible for the exemption from Australian tax, you must have qualifying service for a continuous period of 91 days or more.

A period of absence breaks the continuity of your qualifying service, unless:

the absence does not exceed one-sixth of your total period of qualifying service
the absence is one that still counts as qualifying service.

Qualifying service is not measured on a year-of-income basis. If your qualifying service begins in one income year and continues into the next, you take into account the entire period of your service.

The ‘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 absences don’t exceed one-sixth of your period of qualifying service, your absences won’t break the continuity of your service.

Example: one-sixth test with continuous service – approved overseas project

Noral is engaged on an approved overseas project that is broken by an absence in Australia:

Period of qualifying service 1:	185 days
Absence:	31 days
Period of qualifying service 2:	55 days

Noral's total period of qualifying service is 240 days (185 + 55). Noral's absence of 31 days does not exceed one-sixth of her total service. Therefore, the 2 periods of qualifying service on an approved overseas project are treated as a continuous period. The 31-day absence does not count as foreign service, so Noral's period of qualifying service is 240 days (185 + 55).

End of example

Example: one-sixth test with broken service – approved overseas project

Bob is engaged on an approved overseas project that is broken by an absence in Australia:

Period of qualifying service 1:	185 days
Absence:	60 days
Period of qualifying service 2:	55 days

Bob's total period of qualifying service on an approved overseas project is 240 days (185 plus 55). As Bob's absence of 60 days exceeds one-sixth of the total period, Bob's second period of qualifying service after the absence is treated as a separate period. The number of days of continuous service in the new period starts from the first day of that period.

End of example

Qualifying service on an approved project

Your period of qualifying service on an approved overseas project includes:

the time that you are outside Australia working on the approved project
the time you spend travelling between Australia and the site of the approved project (provided that the travel time is reasonable)
any occasions you are absent from work due to an accident or illness during the period you are working on the approved project, provided you resume your service immediately after the incapacity ceases
any occasions you are on paid leave (other than long service leave or sick/personal leave) that accrues while you are working on the approved project
any breaks that are a normal part of your work arrangements, such as weekends, public holidays and equivalent time off.

If your service ends early due to unforeseen circumstances

If your period of service on an approved project ceases due to unforeseen circumstances, your period of service is taken to also include the period you would have been on the project but for the unforeseen circumstances.

Non-exemption conditions

Your income is not exempt if any of the following apply:

You're an employee and your income is already exempt foreign employment income.
The income is exempt from income tax in the foreign country solely because of the existence of a tax treaty between Australia and that country.
The payment is for long service leave or is a superannuation or pension payment.

Completing your tax return

Although exempt foreign employment income is not included in your assessable income, you still need to show it in your tax return because it affects the rate of tax payable on your taxable income.

If your foreign employment income is not exempt, include it in your tax return. If you paid foreign income tax, include the amount of tax that you paid in your assessable foreign source income. You may be eligible to claim a foreign income tax offset.

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