Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)Chapter 2 - Exemption of income earned in overseas employment
Outline of chapter
2.1 Under the current law, all employees of an Australian government agency who work overseas for not less than 91 continuous days delivering Official Development Assistance (ODA) are exempted from payment of income tax on the income they earned while overseas.
2.2 The provisions exempting these employees from payment of income tax were originally introduced to provide relief from double taxation (in both Australia and the source country). However, the provisions no longer serve this purpose and may be perceived as providing an exemption from income tax for certain subsets of the Australian population, with Australians working overseas often able to avoid income tax in both jurisdictions.
2.3 As a general rule, Australian resident individuals are taxed on their worldwide income through the Australian personal income tax system.
Context of amendments
2.4 These amendments ensure that all employees of an Australian government agency are treated equally in that they will now all be subject to income tax on overseas income they have earned in the delivery of ODA.
Summary of new law
2.5 As a result of these amendments, employees of an Australian government agency who work overseas for not less than 91 continuous days in the delivery of ODA, will no longer be able to claim an income tax exemption on the income they earn while overseas.
Comparison of key features of new law and current law
| New law | Current law |
| Under the new law, employees of an Australian government agency working for not less than 91 days overseas in the delivery of ODA will be subject to income tax on their foreign source income. | Under paragraph 23AG(1AA)(a) employees of an Australian government agency, working overseas for not less than 91 days, who earn income overseas in the delivery of ODA are not subject to income tax. |
Detailed explanation of new law
2.6 The changes will mean employees of an Australian government agency who are undertaking ODA in overseas employment for a period of not less than 91 days are no longer exempt from payment of income tax.
Application and transitional provisions
2.7 These changes apply from the 2016-17 income year and later income years.
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Amending the income tax exemption to government employees who work overseas
2.8 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
2.9 This Schedule amends the income tax law by removing an exemption from income tax liability which applies to government employees undertaking Official Development Assistance work overseas.
Human rights implications
2.10 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
2.11 This Schedule is compatible with human rights as it does not raise any human rights issues.