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  • Pay as you go and foreign employment income

    You should consider if the amount of pay as you go (PAYG) withholding will meet your end-of-year tax liability. If you have exempt foreign income, there are factors you need to consider.

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    Varying the amount of tax your employer withholds

    You can ask us for a variation to your Australian pay as you go (PAYG) withholding amounts. The main reason you would apply for a variation is to ensure the amounts withheld best meet your end of year tax liability.

    If we approve your variation, we send a withholding variation notice to your employer. This allows them to reduce the amount they withhold from payments to you. We cannot provide a withholding variation notice in relation to any foreign tax withheld on the same payment in the other country.

    There is also a class variation your employer can use to reduce the amount of Australian tax they withhold on payments they make to you and their other employees working overseas. The reduction is based on the amount of foreign tax your employer has withheld and paid to a foreign government. Speak to your employer about this class variation.

    How your income is shown on a payment summary

    From the 2009–10 income year, there is a separate PAYG payment summary for employees who have had amounts withheld from their foreign employment income.

    Your PAYG payment summary – foreign employment tells you:

    • your gross foreign employment income
    • the total amount withheld for Australian PAYG withholding purposes
    • possibly, separately, the total amount of foreign tax that your employer has withheld and paid to a foreign government.

    If you earn both foreign employment income and Australian employment income, and your employer is registered for the Australian PAYG withholding system, you will receive two payment summaries:

    • PAYG payment summary - foreign employment income
    • your regular PAYG payment summary – individuals non-business to advise you of your gross Australian employment income and the total amount withheld for Australian PAYG withholding purposes.

    You need to include all of your income in your tax return. This includes foreign employment income that is not reported on your payment summary.

    Foreign employment income is not PAYG instalment income

    Foreign employment income subject to PAYG withholding in Australia and shown on a payment summary does not form part of your PAYG instalment income.

    Foreign employment income not shown on a payment summary may form part of your PAYG instalment income. The value of non-cash benefits that you receive from your employer may also form part of your PAYG instalment income.

    Exempt foreign employment income will not form part of your PAYG instalment income.

    If your foreign employer isn't taking tax out

    The PAYG instalment system is a system for paying instalments towards your expected income tax liability.

    Australia's PAYG withholding system does not apply to foreign employers that do not have 'a sufficient connection with Australia.' Even if your foreign employer isn't taking PAYG withholding amounts out of your pay, you will need to include your foreign employment income in your annual tax return as assessable income. You do this by declaring it at the foreign employment income label.

    If your foreign employer is not subject to Australia's PAYG withholding system and therefore does not withhold Australian tax on your foreign employment income, it will be subject to the PAYG instalment system. We will advise you how much to pay in instalments in the following income tax year.

    If your foreign employer provides you with a non-cash benefit and they are not subject to Australia's PAYG withholding system, you will need to include the value of the non-cash benefit in your assessable income.

    If your foreign employer gives you a non-cash benefit

    If your foreign employer is not subject to Australia's PAYG withholding regime, they will not be subject to our fringe benefits tax regime either. If they give you a non-cash benefit in respect of your employment, you need to include the value of that benefit in your assessable income.

    Whether or not a non-cash benefit is convertible to cash determines what type of income we take it to be (ordinary or statutory). The value of convertible non-cash benefits (ordinary income) is generally subject to the PAYG instalment system. The value of non-convertible benefits (statutory income) is not.

      Last modified: 01 Jul 2022QC 23115