Work out if you’re an employee
You are an employee if you are a person who works:
- for a government or an authority of a government
- for an international organisation
- as a member of a disciplined force.
If you earn fees for independent services you provide overseas you're not an employee or an office holder in the foreign country.
Service on a ship in international waters is not foreign service because international waters do not form part of the territory of a foreign country.
What are foreign earnings?
Your foreign earnings include income you earn such as:
- salary and wages
- commissions or bonuses
- allowances
- income you receive under the employee share scheme provisions.
You will need to include any foreign income from working overseas that is subject to tax as assessable income in your tax return in the year you earn it.
You may be able to claim a foreign income tax offset for amounts of foreign tax you pay, when you lodge your tax return.
Foreign earnings don't include:
- continuing pensions, annuities or superannuation payments
- foreign termination payments
- the tax-free amount of a genuine redundancy payment or an early retirement scheme payment
- payments made as an advance loan, restraint of trade payments or payments for personal injury
- transfers between superannuation funds.
A payment can still qualify as foreign earnings even if it is paid in Australia or not derived at the time you worked overseas – however, the payment must be attributable to a period of foreign service.
Income from certain types of foreign employment and approved overseas projects may be exempt from tax.
Australia has tax treaties with more than 40 jurisdictions.
For more information, see:
- TR 2013/7 Income tax: foreign employment income: interpretation of subsection 23AG(1AA) of the Income Tax Assessment Act 1936
- TD 2012/8 Income tax: what types of temporary absences from foreign service form part of a continuous period of foreign service under section 23AG of the Income Tax Assessment Act 1936
Annual leave while working overseas
Annual leave that you accrue while you are working overseas is still taken to be foreign earnings from foreign service where you both:
- work for an Australian employer
- are not paid until you take the leave (even after you return to Australia).
If your period of foreign service qualifies you for exemption from Australian tax, your leave payment is also exempt. This is the case even if you receive the payment while you are in Australia. Other leave payments, such as long service leave you take after your foreign service ends, may also be exempt.
Supplements paid under the Australian Staffing Assistance Scheme
Under the Australian Staffing Assistance Scheme (ASAS) or a similar arrangement, you usually receive a base salary as well as a supplement.
You pay tax on the base salary in the foreign country. Your supplement amounts are taxable by Australia and exempt from tax in the foreign country. However, the supplement (in common with the base salary) is still considered to be foreign earnings you derive from foreign service.
The supplement is exempt from Australian tax if the other earnings from your foreign service are also exempt.