• Foreign employment income and section 23AG – employees

    If you work overseas continuously for 91 days or more and earned foreign employment income, this information may help you. This page covers the treatment of income tax and superannuation on your foreign income in Australia.

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

    Tax treatment of foreign employment income

    Australian residents for tax purposes are taxed on their worldwide income. So if you have foreign employment income, including salary, wages, commission, bonuses allowances or you receive non-cash benefits, you may need to include this in your tax return.

    If you have paid tax in another country, you may be entitled to claim a foreign income tax offset (FITO) in your Australian tax return. This will provide you with relief from double taxation.

    Foreign earnings derived on or after 1 July 2009, from foreign service performed on or after 1 July 2009, may be exempt from tax in Australia. The exemption for foreign employment income is limited to certain types of employment.

    Foreign employment income exemptions

    Section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) sets out the types of foreign employment income eligible for exemption from income tax in Australia. Changes were made to section 23AG with effect from 1 July 2009 which limit the exemption. They apply where overseas employment includes 1 July 2009 and later.

    From 1 July 2016, 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 (ADF) and Australian Federal Police (AFP) delivering ODA will still be eligible for exemption from Australian income tax on their foreign employment income.

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    Foreign employment income – general questions

    How working overseas affects your tax

    Working overseas can affect your tax. This is because working overseas may or may not change your residency status for tax purposes. Your residency status affects how we tax you.

    As an Australian resident we tax you on your worldwide income. You may be eligible for an exemption for your foreign employment income if you meet some conditions. Foreign residents are taxed only on their Australian-sourced income.

    When your foreign employment income is exempt

    Your foreign employment income may be exempt from tax if you satisfy all of the following conditions:

    • you are an Australian resident
    • you are engaged in continuous foreign service as an employee for 91 days or more
    • your foreign earnings are from employment in one of five categories of foreign service
    • your foreign employment income will not be exempt if a non-exemption condition applies.

    You will not be exempt from income tax in Australia if you did not have to pay tax in the country where you earned the income, and the only reason for this was because:

    • Australia has a tax treaty (also called a double tax agreement) with the other country or there is a law giving effect to a treaty agreement
    • the other country does not impose tax on employment personal services income or similar income
    • a law of the other country, or an international agreement to which Australia is a party, deals with privileges and immunities for diplomats, consular staff and people connected with international organisations (such as the United Nations).

    If there was another or additional reason that your income wasn't taxed in the other country, you may still qualify for an exemption from tax in Australia. Other or additional reasons may include:

    • your income was less than the amount at which tax starts in the other country
    • your income falls into a special category that the other country exempts (for example, payments to visiting aid project workers)
    • a memorandum of understanding (MOU) between Australia and the other country exempts the payments (for example, a MOU between Australia and a developing country for Australians to assist that country)
    • your income comprises supplements paid in Australia under the Australian Staffing Assistance Scheme (ASAS) for overseas service.

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    Types of employment that are exempt

    From 1 July 2009, your foreign employment income may be exempt from tax in Australia if it is directly attributable to one of the following:

    • the delivery of Australian official development assistance by your employer (except if your employer is an Australian Government agency)
    • the activity of your employer in operating a public fund which is either
      • declared by the Treasurer to be a developing country relief fund
      • operated by a public benevolent institution solely to provide relief to people in a foreign country, other than one declared to be a developing country by the Foreign Affairs Minister
    • the activities of your employer, being a prescribed institution that is exempt from Australian income tax
    • deployment outside Australia by an Australian Government (or an Australian Government authority) as a member of a disciplined force
    • an activity of the kind specified in the regulations.

    If you are uncertain if your employment activity falls within one of these qualifications, you can:

    These changes to limit the exemption for foreign employment income to certain types of employment apply to foreign earnings derived on or after 1 July 2009, from foreign service performed on or after 1 July 2009. You should take particular care in applying the exemption where your period of overseas employment includes 1 July 2009.

    From 1 July 2009, there are two instances where the new rules to limit the exemption won't apply:

    • foreign earnings paid before 1 July 2009 relating to foreign service performed before, on or after 1 July 2009
    • foreign earnings paid on or after 1 July 2009 relating to foreign service performed before 1 July 2009.

    From 1 July 2016, 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 (ADF) and Australian Federal Police (AFP), delivering ODA will still be eligible for exemption from Australian income tax on their foreign employment income.

    What 'directly attributable' means

    The law states that the foreign employment exemption is available to you if your employment activity is 'directly attributable to' one of the five categories listed above.

    ATO interpretative decision ATO ID 2010/117 considers the meaning of 'directly attributable to'.

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    If you were paid on or after 1 July 2009

    A payment only qualifies for exemption if you were eligible for the foreign employment income exemption up to 1 July 2009 and you received the payment on or after that date for foreign service performed before that date.

    The exemption does not apply to foreign earnings derived on or after 1 July 2009 from foreign service performed on or after 1 July 2009. This is where your foreign service is not directly related to one of the above types of employment that qualify for exemption.

    Example: Foreign earnings after 1 July 2009

    Natalie is an Australian resident who works as an engineer in Germany. She began work in Germany on 1 February 2009 and was eligible to claim exemption for her foreign employment income at that time. From 1 July 2009, following the changes to the law, Natalie's foreign employment income no longer qualifies for exemption.

    Natalie received her salary for June on 5 July 2009. Although it was paid after 1 July 2009, Natalie's June salary is exempt from income tax in Australia. This is because it was for foreign service before 1 July 2009.

    Any salary Natalie receives on or after 1 July 2009 from her foreign service performed on or after 1 July 2009 will not be exempt. This is because her foreign employment income no longer qualifies for the exemption.

    End of example

    If you are paid on or after 1 July 2016

    The payment will qualify for exemption if you are an Australian Government employee and the following apply:

    • you earned the foreign income while delivering ODA
    • you were eligible for the foreign employment income exemption up to 1 July 2016
    • you received payment on or after that date for foreign service performed before that date.

    The exemption does not apply to foreign earnings derived on or after 1 July 2016 from foreign service performed on or after 1 July 2016. This is where your foreign service is not directly related to one of the above types of employment that qualify for exemption.

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    Working out your 'continuous period of foreign service' if your income stops being exempt

    A requirement of the foreign employment income exemption is a continuous period of foreign service of 91 days or more.

    If you ceased to be eligible for the foreign employment exemption as of 1 July 2009 because of the changes to the law, you can still include the days you remained in foreign employment after that date in your calculation for your period of continuous foreign service. Where you meet the 91 days minimum service requirement, you can claim the exemption on both:

    • foreign earnings paid before 1 July 2009 relating to foreign service performed before, on or after 1 July 2009
    • foreign earnings paid on or after 1 July 2009 relating to foreign service performed before 1 July 2009.

    Example: 91-day minimum requirement

    Wallace, an Australian resident, is employed by a Thai company to work in Bangkok from 1 June 2009 to 30 September 2009. This is a total of 122 days. His foreign employment income was exempt when he began to work in Bangkok, but he did not qualify for exemption after the law changed on 1 July 2009.

    However, Wallace's total service period (122 days) meets the 'continuous foreign service' requirement. This means he can claim an exemption from tax for foreign earnings both:

    • derived before 1 July 2009 from foreign service performed before, on or after 1 July 2009
    • derived on or after 1 July 2009 from foreign service performed before 1 July 2009.

    Wallace cannot claim the tax exemption for foreign employment income derived on or after 1 July 2009 for foreign service performed on or after 1 July 2009.

    End of example

    If Australia has a tax treaty with the other country

    Australia has tax treaties with a number of other countries. These treaties (also known as double tax agreements) may affect the way we tax your foreign employment income. A tax treaty will only apply to you if you are an Australian resident or resident of the other country.

    If your foreign employment income was not taxed in the other country solely because of a tax treaty (or a law giving effect to a treaty agreement), the foreign employment exemption will not apply. That income will be taxable in Australia.

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    If you are working on an approved project

    Your foreign income may be exempt from tax if you are working on an 'approved overseas project'. This exemption is separate to the foreign employment exemption.

    You will be able to claim the approved overseas project exemption if you meet the conditions, including working 91 days or more on the project.

    Your employer will advise you if you are working on an approved overseas project.

    The Minister for Trade (Austrade) is responsible for approving 'eligible projects'.

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    Exempt income and your Medicare levy and surcharge

    Your exempt foreign employment income is included in the calculation of your liability for Medicare levy and Medicare levy surcharge.

    Your total reportable fringe benefits amount and reportable employer superannuation contribution amount are also added to your taxable income to work out your liability for the Medicare levy surcharge.

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    Exempt income in the income tests

    We take your exempt foreign employment income into account when we work out your adjusted taxable income (ATI). This is one of the income tests that apply from 1 July 2009. We use your ATI to determine if you are eligible for some tax offsets.

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    Exempt income and student loan repayments

    We include your exempt foreign employment income when we work out your repayment income as part of working out your Higher Education Loan Program (HELP) debt for the year.

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    Employee share scheme benefits

    A benefit you receive under an employee share scheme (ESS) forms part of your foreign employment income. If your foreign employment income is tax exempt, the benefit is also exempt. If your foreign employment income is not eligible for the exemption, the benefit you receive under an ESS will not be exempt.

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    Foreign employment income – pay as you go

    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.

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    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.

    The PAYG payment summary – foreign employment will advise you of your gross foreign employment income and the total amount withheld for Australian PAYG withholding purposes. It may also show, 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. In addition to the PAYG payment summary - foreign employment income, your regular PAYG payment summary – individuals non-business will 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.

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    If your foreign employer isn't taking tax out

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

    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.

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    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.

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    Foreign employment income – tax offset

    Paying tax twice on foreign income

    If you pay tax on your foreign employment income in the other country and that income is not exempt from tax in Australia, you could pay tax twice on the same income. To prevent this, you may be entitled to claim a foreign income tax offset (FITO) for the foreign income tax you paid.

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    Claiming a FITO for foreign tax paid

    You may be able to claim a FITO on foreign tax you pay if you have both:

    • paid income tax in another country
    • included the same income (or gain) you paid the foreign tax on in your assessable income for Australian tax purposes.

    The FITO rules apply to income years starting on or after 1 July 2008. The FITO is non-refundable and you cannot carry forward any excess.

    Claiming a foreign income tax offset

    You claim the FITO in your Australian tax return:

    • in your assessable income, include the income or gain on which you paid the foreign income tax
    • claim the FITO at item 20 – Foreign source income and foreign assets and property.

    You need to convert your foreign income, foreign deductions and foreign tax paid to Australian dollars.

    If you are claiming a FITO of $1,000 or less, you only need to record the amount of foreign income tax you paid. If your claim is for more than $1,000, you need to work out your FITO limit first.

    Keep sufficient written evidence to support your claim for the FITO.

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    When you are considered to have paid foreign tax

    If you have paid an amount of tax to a foreign government that is correctly imposed under the law of the country (and in accordance with any tax treaty the country has with Australia), we consider you to have paid foreign income tax.

    Legitimate payment of tax includes amounts paid on your behalf. For example, if your employer withholds tax from your payments and pays this tax to the foreign government on your behalf.

    We don't consider you to have paid foreign tax if either of the following applies:

    • you are entitled to a refund of the foreign income tax
    • you receive a benefit that is worked out by reference to the amount of the foreign income tax.

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    Foreign taxes that qualify for the offset

    To count towards a foreign income tax offset (FITO), foreign tax must be imposed under a law other than an Australian law and be one of the following:

    • a tax on income
    • a tax on profits or gains, whether of an income or capital nature
    • a tax that is subject to an agreement covered by the International Tax Agreements Act 1953.

    The following types of foreign taxes do not count towards a foreign income tax offset:

    • inheritance taxes
    • annual wealth taxes
    • net worth tax
    • taxes based on production
    • credit absorption taxes
    • unitary tax.

    You are not entitled to a FITO if you pay tax in another country on a benefit and your employer pays fringe benefits tax in Australia on the same benefit.

    Penalties, fines and interest do not qualify as foreign tax.

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    Claiming a FITO and foreign tax

    You can't claim a FITO before you pay the foreign tax. But you can amend your tax return to claim the FITO after you have paid the foreign tax.

    To claim a FITO, you must have already paid tax in another country. If you have to lodge your Australian tax return before you have paid the tax in the foreign country, you cannot claim the FITO on that tax return. This situation can result from the different income tax years in the other country and Australia.

    Once you have paid the foreign tax, you can seek an amendment to your Australian income tax assessment to claim the FITO. You have up to four years from the date you paid the foreign income tax (or there was a change in the amount of foreign income tax you paid that counts towards the offset) to request an amendment.

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    Deferring paying tax when claiming FITO

    Whether you can defer paying tax because you are going to claim a FITO will depend on the circumstances. Generally, you must pay your assessed income tax by the date provided on your notice of assessment.

    In some circumstances we may allow you to defer the due date for payment. For example, if you are due to pay foreign tax in the coming months and will then amend your Australian return to claim a FITO that will wipe out your tax liability, we may allow a payment deferral.

    You need to ask us for a deferral. If you lodge through a tax agent they will be able to do this for you. Alternately, you can phone us on 13 28 61. If you phone us, you can also discuss other options available.

    Showing you have paid foreign tax

    To be eligible for a FITO, you need written evidence of the foreign tax you actually paid.

    Written evidence of foreign tax paid should include the following details:

    • the amount of foreign income or gains in the foreign currency
    • the foreign tax year in which the income or gains were derived
    • the nature and amount of foreign tax levied on the foreign income or gains
    • the date on which the foreign tax was paid
    • whether the tax paid represents an advance, instalment, or final foreign tax payment in relation to the relevant foreign income or gains.

    Written evidence could be either:

    • a statement from the foreign tax authority setting out the particulars that would normally be recorded on a notice of assessment, a similar official receipt or other document evidencing payment of foreign income tax
    • payslips, payment summaries or similar documents that show the amount of foreign tax paid – we will accept these where there is no requirement in a foreign country to lodge an income tax return
    • a copy of the foreign income tax return accompanied by a receipt verifying that the foreign tax, as calculated on the basis of the return, has been paid
    • a letter from the relevant foreign tax authority stating all taxes for that income year have been paid.

    You do not need to include your evidence when you lodge your Australian tax return, but you must be able to provide it if we ask for it.

    If you use a tax agent to prepare and lodge your return, you need to:

    • tell them if you have earned any assessable income that you paid foreign income tax on
    • provide them with evidence you paid the foreign tax.

    If we need information relevant to your assessment that is held overseas, we will tell you in writing and give you time to get the information.

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    Foreign income – fringe benefits tax

    Claiming a FITO for foreign tax on a benefit

    If you pay tax in another country on a fringe benefit and your employer is subject to fringe benefits tax (FBT) in Australia on the same benefit, you cannot claim a FITO on the foreign tax you paid on the benefit. This is because you can only claim a FITO on foreign income that is included in your assessable income in Australia. A benefit your employer pays FBT on is not included in your assessable income in Australia.

    FBT living-away-from-home provisions

    If you are required to live away from your usual place of residence to perform your employment-related duties, and you meet the requirements of the living-away-from-home (LAFH) provisions, the LAFH provisions can apply.

    The usual record-keeping requirements, such as employee declarations, also still apply.

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    FBT as an employee

    Regardless of whether your income is exempt or not, you are not liable for FBT in Australia on the value of fringe benefits your employer provides you with. This is because FBT is an employer obligation. If your employer has to pay FBT, they will advise you of any reportable fringe benefits by including them on your payment summary.

    You must include the amount of any reportable fringe benefits in your tax return, but we do not include this amount when we work out your assessable income. However, it may affect other calculations such as:

    • the Medicare levy surcharge
    • deductions for personal super contributions made before 1 July 2017
    • super co-contribution
    • entitlements to some income-tested government benefits.

    Note: If you’re an employee, you generally can’t claim a tax deduction for any personal super contributions made before 1 July 2017. However, most people, regardless of their employment arrangement, will be able to claim a deduction for any personal super contributions made on or from 1 July 2017.

    You have to declare the value of any benefits your employer provides you with that are not subject to the FBT regime.

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    Non-cash benefits in Australia

    If your employer does not have to deduct PAYG withholding from your foreign employment income, any non-cash benefits you receive are not subject to FBT. However, you must include the value of the non-cash benefits in your assessable income.

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    Foreign employment income – superannuation

    If your foreign employment income is not exempt from tax in Australia, it may affect your super guarantee, super co-contributions or tax deductions for personal super contributions.

    Your super guarantee

    Although your foreign employment income is not exempt from tax, it does not affect your entitlement to the super guarantee. The super guarantee is not linked to your assessable income. If you are an employee and get salary or wages, you will generally be entitled to super guarantee. An exception to this is if your employer is a foreign resident and you are working outside Australia.

    If your employer is not an Australian resident, they are not required to provide super guarantee for you when you are working outside Australia. If you also work within Australia for this employer, they should be providing the super guarantee for you for this period.

    If your employer is an Australian resident then generally the law requires them to provide super guarantee for you, for your period of service both inside and outside Australia.

    If you have questions about your super guarantee, speak to your employer.

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    Your super co-contributions

    If your foreign employment income is not exempt from tax, you include it in your assessable income. We will take it into account when we work out your entitlement to a co-contribution.

    If your foreign employment income is exempt, it is excluded from your assessable income. We do not take it into account when we work out your entitlement to a co-contribution.

    To be entitled to a super co-contribution you must have made a personal contribution into a complying fund and meet certain income tests.

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    Your deductions for personal super contributions

    If your foreign income is not exempt from tax, you need to include any super contributions you made before 1 July 2017 in your assessable income. This is taken into account in working out your entitlement to deductions for super contributions.

    Your entitlement to deductions for super contributions made before 1 July 2017 is based on the combined amount of your:

    • assessable income
    • reportable fringe benefits
    • reportable employer super contributions.

    For personal super contributions made before 1 July 2017, you are not entitled to claim a tax deduction if you earn 10% or more of the above as an employee. This includes activities in which you are treated as an employee for the purpose of the Superannuation Guarantee Administration Act 1992 (SGAA) for the income year.

    Generally you will be an employee for the purposes of the SGAA if you either:

    • receive a payment in the form of salary or wages in return for your labour or services
    • are engaged under a contract that is wholly or principally for your labour.

    You may be entitled to claim a deduction for your personal super contributions made before 1 July 2017 if your employer is an Australian resident, and your foreign employment income is either:

    • exempt (you still need to meet the eligibility requirements)
    • not exempt but (together with reportable fringe benefits and reportable employer super contributions) is below 10% of your total assessable income, reportable fringe benefits and reportable employer super contributions for that income year (you also need to meet the eligibility requirements)
    • your entitlement to claiming a deduction for personal super contributions will depend upon if you get employment-related income from other employers during the income year.

    For personal super contributions made on or after 1 July 2017, the 10% income test is removed. Your foreign employment income is not taken into account in working out your entitlement to a deduction for personal super contributions, however you still need to meet the other eligibility requirements.

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      Last modified: 06 Feb 2017QC 23115