Step 1: continuous service for 91 days or more
Are you engaged in continuous foreign service as an employee for 91 days or more?
If yes, go to step 2.
If no, your foreign employment income is not exempt from Australian tax.
Step 2: payment after 1 July 2009
Did you get your foreign employment income earnings on or after 1 July 2009 for foreign service performed on or after 1 July 2009?
If yes, go to step 3.
If no, different rules apply for work done or paid for before 1 July 2009.
Payments before 1 July 2009
The following applies if your income is from:
- 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.
A payment only qualifies for exemption if you:
- were eligible for the foreign employment income exemption up to 1 July 2009
- you received the payment on or after 1 July 2009 for foreign service performed before 1 July 2009.
The exemption doesn't 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 isn't 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 received 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 exampleStep 3: type of employment
Is your foreign employment income related to any of the following:
- employment in the delivery of Australian official development assistance by your employer
- employment for an employer in operating a public fund that 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
- employment with an employer that as a prescribed institution 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
- employment in an activity of the kind specified in the regulations.
If yes, go to step 4.
If no, your foreign employment income is not exempt from Australian tax under 23AG.
If you're not certain if your employment activity falls within one of these types, you can:
- apply for a private ruling
- contact us
- speak to your employer.
Step 4: no non-exemption conditions apply
Do any the following apply to you.
Your income is exempt in the other country only 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)
- From 1 July 2016, you're an Australian Government employee delivering Australian official development assistance.
If yes, go to step 5.
If no, your foreign employment income is exempt from Australian tax.
Tax treaty
Australia has tax treaties (also known as double tax agreements or International tax agreements) with a number of other countries. These treaties may affect the way we tax your foreign employment income. A tax treaty will only apply to you if you're an Australian resident or resident of the other country.
If your foreign employment income wasn't taxed in the other country solely because of a tax treaty (or a law giving effect to a treaty agreement), the foreign employment exemption won't apply. That income will be taxable in Australia.
Step 5: additional exemption reasons
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 if:
- 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 includes supplements paid in Australia under the Australian Staffing Assistance Scheme (ASAS) for overseas service.
If you're working on an approved project
Your foreign income may be exempt from tax if you're working on an approved overseas project. This exemption under 23AF is separate to the foreign employment exemption under 23AG. The Minister for Trade (Austrade) is responsible for approving 'eligible projects'. Your employer will advise you if you're working on an approved overseas project.
You'll be able to claim the approved overseas project exemption if you meet the conditions, including working 91 days or more on the project.