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Better targeting the income tax exemption for Australians working overseas


Tuesday, 12 May 2009

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The Treasurer, the Hon Wayne Swan, has released exposure draft legislation to amend the current general income tax exemption for income earned in overseas employment.

The exposure draft legislation implements announced changes to better target the exemption (provided by section 23AG of the Income Tax Assessment Act 1936). Further information about these changes is in the Treasurer’s Press Release No 066 of 12 May 2009.

The proposed amendments will affect some individuals who are residents of Australia for income tax purposes. They will not affect all Australian citizens working outside Australia. That is, they will not affect Australian citizens who are not residents of Australia for tax purposes.

Interested parties are invited to comment on the exposure draft legislation. While submissions may be lodged electronically or by post, electronic lodgement is preferred. For accessibility reasons, please submit responses sent via email in a Word or RTF format. An additional PDF version may also be submitted.

All information (including name and address details) contained in submissions will be made available to the public on the Treasury website unless you indicate that you would like all or part of your submission to remain in confidence. Automatically generated confidentiality statements in emails do not suffice for this purpose. Respondents who would like part of their submission to remain in confidence, should provide this information marked as such in a separate attachment. A request made under the Freedom of Information Act 1982 (Commonwealth) for a submission marked 'confidential' to be made available will be determined in accordance with that Act.

Closing date for submissions: Monday, 18 May 2009

Address written submissions to:

The Manager
International Tax Unit
International Tax and Treaties Division
The Treasury
Langton Crescent

Fax: (02) 6263 4352

Email: Australiansworkingoverseas@treasury.gov.au

For inquiries, please call Greg Wood (02) 6263 3329

Background Information

Section 23AG provides an exemption from Australian income tax for income earned in overseas employment by Australian resident individuals.  Essentially, the exemption applies to foreign earnings derived from service in a foreign country for a continuous period of 91 days or more.  However, foreign earnings are not exempt if they are exempt from tax in the foreign country only because of one or more of the following reasons:

  • A tax treaty with Australia or a law giving effect to a treaty agreement;
  • The foreign country does not impose income tax on employment or personal services income;
  • A law of the foreign country or an international agreement to which Australia is a party, which deals with diplomatic or consular privileges and immunities, or privileges and immunities for people connected with international organizations (such as the United Nations).  

The exemption can apply in cases where little foreign tax has been paid.  This can produce non-neutral outcomes between individuals working in different countries, with different tax rates, and between individuals working overseas and individuals working in Australia.  The Government will minimise this potential for inequity, by narrowing the scope of section 23AG so that the exemption will only apply to foreign employment income derived in a limited range of circumstances.

Foreign earnings derived on or after 1 July 2009 by an Australian resident individual engaged in continuous foreign service for not less than 91 days will only be exempt from income tax if they are directly attributable to:

  • The delivery of Australian official development assistance by the individual’s employer; or
  • The activities of the individual’s employer in operating a public fund declared by the Treasurer to be a developing country relief fund; or a public fund established and maintained by a public benevolent institution solely for providing money for the relief of people in a developing country who are in distress as a result of a disaster, as recognized by the Minister for Foreign Affairs; or 
  • The individual’s deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force.

‘Australian official development assistance’ is intended to refer to the Australian Government’s overseas aid program.

Employees of organizations that operate public overseas aid funds that have been approved for tax deductibility purposes by the Treasurer may be eligible for exemption under the new rules.  The Australian Agency for International Development (AusAID) has published a list of such funds, which is available at: http://www.ausaid.gov.au/ngos/approved_funds.cfm.

A ‘member of a disciplined force’ is intended to include defence and police force personnel.

Foreign earnings that will be exempt under the new rules will remain subject to the existing conditions for exemption (summarised above) prescribed by section 23AG.

The new rules will apply to income derived on or after 1 July 2009.  The existing rules will apply to foreign employment income derived on or before 30 June 2009.  Foreign employment income derived on or after 1 July 2009, that is not exempt under section 23AG, will be subject to Australian income tax unless that income is exempt under another provision of the tax law.  Individuals who derive non-exempt foreign employment income will be able to claim a non-refundable tax offset for foreign income tax paid on that income.  This is already provided for by existing law (Division 770 of the Income Tax Assessment Act 1997) and will relieve double taxation for those individuals.

Documents Available:

Acrobat (PDF) documents

 Acrobat (PDF)

Exposure Draft  17.88kb

Microsoft Word (RTF) documents

 Microsoft Word (RTF)

Exposure Draft  105.05kb

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