Foreign employment income and section 23AG – employers
If you employ an Australian resident individual who works overseas continuously for 91 days or more, this information may apply to you.
On this page, 'foreign resident' is the same as 'non-resident'.
What do the changes to section 23AG mean?
Changes to section 23AG of the Income Tax Assessment Act 1936 took effect on 1 July 2009. The changes limit the exemption for foreign employment income to certain types of employment. Foreign employment income that is not exempt may be subject to Australian income tax.
Further changes took effect on 1 July 2016. The changes mean that Australian government employees who earn foreign income while delivering Australian official development assistance (ODA) will not be eligible for exemption from Australian income tax on their foreign employment income.
Members of a disciplined force, such as Australian Defence Force and Australian Federal Police, delivering ODA will still be eligible for exemption from Australian income tax on their foreign employment income.
What are the employment categories?
From 1 July 2009, an exemption from income tax on foreign employment income under section 23AG is only available if it is directly attributable to any of the following:
- your delivery of Australian ODA (except if your employer is an Australian Government agency)
- your activities in operating one of the following
- a public fund declared by the Treasurer to be a developing country relief fund
- a public fund established and maintained to provide monetary relief to people in a developed foreign country that has experienced a disaster
- your activities as a prescribed charitable or religious institution that is exempt from Australian income tax because the prescribed institution is located or pursuing objectives outside Australia
- their deployment outside Australia as a member of a disciplined force and you are part of, or an authority of, the Australian Government
- an activity specified in the regulations.
What if your employee's income is not exempt?
If your employee's income is not exempt, you need to:
- withhold from payments of foreign income you make to your employees according to the Australian pay as you go (PAYG) withholding rules
- issue a PAYG payment summary - foreign employment (NAT 73297) for the foreign income
- meet any fringe benefits tax obligations for any benefits you provide to your employee.
You need to report any assessable payments for foreign employment income before 1 July 2009 on a PAYG payment summary – individual non-business (NAT 0046).
Can you vary 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: Varying pay as you go withholding amounts
Norman is an Australian resident working in Papua New Guinea (PNG) for four months from July 2015. His Australian employer pays him in PNG kina (K). He receives K3,850 weekly and pays K462 of this tax in PNG.
In this case, 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
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.
End of example
If you are having trouble meeting your PAYG obligations, email us at email@example.com
Does the class variation always apply?
No. You only use the class variation to vary your employee's Australian withholding amount based on the amount of foreign tax you withheld and paid to a foreign government.
You do not use it:
- when you pay your employee's foreign tax assessment
- if you do not have a withholding obligation in the foreign country.
Can you request a class variation for your employees?
Yes. If you have a number of Australian resident employees working overseas, you can request a class variation to withhold less Australian tax in anticipation that your employees will have nil or very little Australian tax to pay.
You may apply for a variation based on your employees' particular circumstances - for example, it may be appropriate to request a variation to the rate to withhold for a class of taxpayers, depending upon the particular country that your employees are working in.
You can request class variations by emailing us at firstname.lastname@example.org
What happens when you apply for a class variation?
We will tell you how much you can reduce the amount of withholding by for the class of employees.
The amount you can reduce it by depends on your employees' particular circumstances, including the rate of foreign tax they pay in the foreign country (if any). A variation should reflect your employees' actual end-of-year tax liability.
Can your employee apply for a withholding variation?
Yes. Your employee may seek an individual variation to their withholding liability from us. We will tell you the amount to withhold if your employee applies for a variation.
How do you meet your PAYG obligations?
If you employ an Australian resident who works overseas, you need to complete a PAYG payment summary - foreign employment (NAT 73297).
On this form, you provide details of payments you made and amounts you withheld. The details you provide include foreign tax you withheld and paid to a foreign government, from foreign employment income and income earned for work in the Joint Petroleum Development Area (JPDA) paid to an Australian resident.
- To obtain the payment summary
Do you have a fringe benefits tax liability?
You may have a fringe benefits tax (FBT) liability if you provide a fringe benefit to an employee (or associate).
If an employee's individual fringe benefits amount is more than $2,000, you must report the grossed-up value of that amount on the employee's payment summary. This amount is known as your reportable fringe benefits amount.
Grossing up means increasing the taxable value of benefits you provide to reflect the gross salary employees would have to earn at the highest marginal tax rate (including Medicare levy) to buy the benefits after paying tax.
When do your fringe benefits tax obligations apply?
FBT only applies to fringe benefits you provided to an employee from 1 July 2009. For the 2009–10 FBT year, special rules apply if your employee's income is no longer exempt under section 23AG because of changes to the way we tax foreign employment income.
When does the FBT exemption for fly-in fly-out arrangements apply?
In some circumstances, you can apply the FBT exemption under subsection 47(7) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) for travel you provided to employees under a fly-in fly-out arrangement. This exemption is available:
- where an employee's usual place of employment is
- on an oil rig, or other installation, at sea
- at a location in a state or internal territory but not in, or adjacent to, an eligible urban area, or
- at a remote location that is not in a state or internal territory
- and where
- you provide the employee with accommodation at or near the worksite on working days
- you provide transport so employees can return to their usual place of residence on their days off
- it would be unreasonable to expect the employees to travel to and from work on a daily basis.
Can the FBT living-away-from-home provisions apply?
Yes. Provided your employee is required to live away from their usual place of residence in order to perform their employment-related duties and the other requirements of the living away from home (LAFH) provisions are satisfied, the LAFH provisions can apply to your employees if they are living overseas.
When are you required to register for PAYG withholding in Australia?
If you make a withholding payment to a payee, you are required to register for PAYG withholding in Australia.
How do you register for PAYG withholding in Australia?
If you do not have an Australian business number (ABN), you will need to apply for one. You can do this online at abr.gov.auExternal Link
You should apply for PAYG withholding registration as part of this process.
If you already have an ABN, you can register for PAYG withholding by simply phoning us on:
- 13 28 66
- +61 2 6216 1111 (for overseas callers).
You will need to be the authorised contact to make this request.
If you are not eligible for an ABN, you will need to obtain a Withholding payer number (WPN). You will need to complete NAT 3377 - Application to register a PAYG withholding account and lodge it with us.
Do foreign resident employers withhold for Australian resident employees working overseas?
On 19 January 2011, we published Taxation Determination TD 2011/1. The view is that a foreign resident employer who pays an Australian resident for work performed overseas is subject to withholding obligations if the foreign resident employer has a sufficient connection with Australia.
The taxation determination explains that the sufficient connection must be with the employer and provides guidance as to what a sufficient connection will be.
- TD 2011/11 Income tax and fringe benefits tax: can a non-resident entity be:
(a) required to withhold amounts from salary and wages paid to an Australian resident employee for work performed overseas under section 12-35 of Schedule 1 to the Taxation Administration Act 1953?
(b) subject to obligations under the Fringe Benefits Tax Assessment Act 1986 in relation to benefits provided to an Australian resident employee in relation to work performed overseas?
Do foreign resident employers pay super for Australian resident employees working overseas?
Obligations under the Fringe Benefits Tax Assessment Act 1986 (FBTAA) arise depending upon your withholding obligations under the PAYG withholding regime.
If you do not have a withholding obligation, amounts you pay to your employee will not be 'salary or wages' as defined in subsection 136(1) of the FBTAA and no obligations under this act can arise for you in relation to benefits provided to that employee.
If you do have a withholding obligation, obligations under the FBTAA can arise in relation to benefits you provide to your employee.
Are your employees exempt from income tax while working on an 'approved overseas project'?
Those employees working in a foreign country on an approved overseas project (approved by Austrade) may be exempt from income tax under section 23AF.
The requirements for the exemption for an 'approved overseas project' under section 23AF are very different from those of 23AG - for example, to apply the exemption for approved overseas projects, your employees do not have to pay income tax in the foreign country on foreign income they earn.
If your employee's income stops being exempt under section 23AG, it may still be exempt under section 23AF.
The Minister for Trade or their delegate is responsible for approving projects.
Do you have super guarantee obligations?
Generally, you have a super guarantee obligation if you pay your employee a salary or wage. This is unless the income or form of employment is exempted under the Superannuation Guarantee (Administration) Act 1992 (SGAA).
- are not an Australian resident employer, you are not liable for the super guarantee for the period your Australian resident employee is employed outside Australia
- are an Australian resident employer, you are not exempt from the super guarantee, even where your Australian resident employee is employed outside Australia.
If you have not correctly provided super guarantee for an employee (because you did not contribute the right amount to the super fund by the due date or did not meet their choice of fund) you must lodge and pay the super guarantee charge to us.
If you do not meet your super guarantee obligations, you may have to pay penalties and a general interest charge.
Frequently asked questions relating to foreign employment income and 23AG for employers.