• Foreign employment income and section 23AG – employers

    If you employ an Australian resident individual who works overseas continuously for 91 days or more, you need to check if you are meeting your tax and superannuation obligations.

    On this page, 'foreign resident' is the same as 'non-resident'.

    Find out about:

    Approved overseas projects

    Employees working in a foreign country on an Austrade 'approved overseas project', may be exempt from Australian income tax.

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    Class variation for employees

    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, the country they work in and the rate of foreign tax they pay in that country. The variation should reflect your employees' actual end-of-year tax liability.

    Based on the information you provide, we will work out how much you can reduce the Australian withholding rate by for these employees.

    You can request class variations by emailing us at withholding@ato.gov.au.

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    Employment categories

    Exemption from income tax on foreign employment income is only available when directly attributable to any of the following:

    • your delivery of Australian official development assistance, except when 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
    • 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
    • a 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.

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    Foreign resident employers

    Foreign resident employers paying for Australian resident employees working overseas

    In 2011, we published a taxation determination (TD 2011/1) to explain the withholding and FBT obligations a foreign resident employer may have when paying an Australian resident for work performed overseas.

    The determination provides guidance and an interpretation of the statutory obligations for foreign resident employers.

    See also:

    • 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?

    Fringe benefits tax (FBT)

    FBT liability

    You may have an FBT liability if you provide a fringe benefit to an employee or associate. An obligation to pay FBT will only arise if there is an obligation to withhold from payments made to an employee under PAYG Withholding legislation.

    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.

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    FBT exemption for fly-in/fly-out arrangements

    In some circumstances, you can apply the FBT exemption 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.

    FBT living-away-from-home provisions

    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.

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    Income tax

    Limited exemptions from income tax

    In 2009 and 2016, changes to the Income Tax Assessment Act 1936 took effect that limited exemptions for foreign employment income to certain types of employment. Foreign employment income that is not exempt may be subject to Australian income tax.

    These changes meant Australian government employees who earn foreign income while delivering Australian official development assistance won't be exempt from Australian income tax on their foreign employment income.

    Members of a disciplined force, such as the Australian Defence Force and Australian Federal Police, delivering official development assistance are eligible for exemption from Australian income tax on their foreign employment income.

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    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 FBT obligations for any benefits you provide to your employee.

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    PAYG

    Meeting 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 the foreign tax you withheld and paid to a foreign government, from foreign employment income. This includes income earned for work in the Joint Petroleum Development Area paid to an Australian resident.

    Next step:

    Registering for PAYG withholding in Australia

    If you make a withholding payment to a payee, you are required to 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 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. You will need to complete NAT 3377 – Application to register a PAYG withholding account and lodge it with us.

    Applying for a withholding variation if you are an employee

    An 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.

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    Varying PAYG withholding amounts for employees

    You may 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 PAYG withholding amounts

    Norman is an Australian resident working in Papua New Guinea (PNG) for four months from July 2017. His Australian employer pays him in PNG kina (K). He earns K3,850 weekly and pays K462 of this in 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.

    In this example, the exchange rate for converting PNG kina to Australian dollars 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 $1,631.36 = $401

    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 = $195.76

    Amount to be withheld = $401 − $195.76 = $205.24

    Rounded to the nearest dollar = $205

    The amount to be withheld for Australian PAYG withholding purposes from the payment of K3,850 is AU$205.

    End of example

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    You can only vary your employee's Australian withholding amount based on the amount of foreign tax you withheld and paid to a foreign government, and you have a withholding obligation in the foreign country.

    If you are having trouble meeting your PAYG obligations, email us at withholding@ato.gov.au.

    Super guarantee

    You have a super guarantee obligation if you pay your employee a salary or wage, unless the income or form of employment is exempt.

    If you're:

    • not an Australian resident employer, you're not liable for the super guarantee for the period your Australian resident employee is employed outside Australia
    • an Australian resident employer, you're not exempt from the super guarantee, even where your Australian resident employee is employed outside Australia.

    If you do not meet your super guarantee obligations, you must lodge and pay the super guarantee charge and may have to pay penalties and a general interest charge.

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      Last modified: 12 Sep 2017QC 27232