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  • Accounting for foreign tax

    You should reduce the PAYG withholding if:

    • your employee's foreign earnings are assessable in Australia, and
    • you pay tax to a foreign government on their behalf.

    It should be reduced by the Australian dollar equivalent of the amount of tax paid to the foreign country.

    You do not need to withhold any further amount if the tax paid to the foreign government is equal to or greater than the amount you would have otherwise withheld for Australian tax purposes.

    Example 1

    Norman is an Australian resident who has been sent to work in Papua New Guinea for four months from July 2016. Norman will be paid in local currency, the Papua New Guinea kina, by his Australian employer. He receives K3,850 weekly. You have established that you are required to withhold K1,413.26 for Papua New Guinea income tax.

    Norman has claimed the tax-free threshold with respect to his Australian employment but is not eligible for any tax offsets. He does not have a Higher Education Loan Program or Student Financial Supplement Scheme debt. Norman is not entitled to leave loading.

    For the purposes of this example, the exchange rate that applies for converting Papua New Guinean kina to Australian dollars is 2.36.

    Step 1: Convert the earnings in K to A$

    • K3,850÷2.36 = $1,631.36

    Step 2: Calculate the Australian amount to be withheld from the amount calculated at step 1, using the relevant PAYG withholding tax table.

    • Amount to be withheld from $1,631 = $405

    Step 3: Convert the amount withheld and paid to the foreign country to A$

    • K1,413.26÷2.36 = $598.84

    Step 4: Reduce the amount calculated at Step 2 by the amount calculated at Step 3

    • Amount to be withheld $405−$598.84 = 0

    As the amount of tax paid to the foreign government is greater than what would have been withheld for Australian tax purposes, no further withholding is required.

    End of example

    See also:

      Last modified: 30 Apr 2019QC 22115