Wednesday, 13 May 2009

The end of Income Tax Exemptions for Australians Working Overseas

This is a press statement from the Australian government following the recent budget. The statement and the draft legislation is refers to seem to indicate that as from 1 July 09 all Australians earning income overseas (with 3 exempt categories) will be taxed at the equivalent rate to Australians working in Oz. Whether this applies to people earning income in non-tax jurisidictions like, umm, for example, the UAE, seems unclear, it all seems to turn on the definition of who is or isn't a "tax resident". The Treasury page is here. At the bottom of the Treasury page is a link to the proposed legislation.
The Rudd Government today announces important new measures to ensure that workers who earn income overseas do not have an unfair advantage over workers who earn income and pay tax in Australia.

The measures help improve the fairness and integrity of the tax system by better targeting the tax exemption for income earned by Australians earning income overseas.

The measures will also protect Commonwealth revenues needed to support jobs and invest in vital nation-building in the face of the global recession.

The new measures are expected to provide an additional $675 million over the forward estimates.

Currently, Australians working overseas for over 90 consecutive days are eligible for a general exemption which means they do not pay any Australian income tax on their foreign employment income.

This general exemption was provided to ensure that foreign employment income was not double‑taxed, first in the country where the income was earned and then again in Australia.

However, many foreign countries are lower tax jurisdictions which means some Australians who earn income overseas are paying much less tax than if they earned income solely in Australia.

In addition, workers can use the general exemption to lower their taxable income for the purposes of accessing a range of government benefits.

Under the new measures announced today, the Government will amend the general exemption to provide a better targeted exemption which is only available for income earned:

- as an aid or charitable worker employed by a recognised non-government organisation; or

- as a government aid worker; or

- as a specified government employee (for example, defence and police force personnel deployed overseas).

Further, income earned by an individual employed on an overseas project approved by the Minister for Trade as being in the national interest will remain exempt, as provided for by existing rules.

To avoid Australians paying double-taxation, a tax offset will be available for any foreign tax paid on their foreign employment income.

Treasury will undertake stakeholder consultations concerning the legislation and administrative arrangements for these changes.

CANBERRA12 May 2009


  1. "The measures help improve the fairness and integrity of the tax system by better targeting the tax exemption for income earned by Australians earning income overseas."

    How can such educated people talk about fairness at such a high level. The cost of living in such countries can be a lot more resulting in the needed additional income.

  2. The changes announced in the Budget only affect RESIDENT Taxpayers, that is people living in Australia and commuting for short term employment stints overseas.

    For anyone that is genuinely LIVING ABROAD there is no change as you are a NON RESIDENT for Tax Purposes and the old Exempt Income Rules did not apply to you in any case.

    If you are unsure if your are living in or out of Australia, it is a simple as where is your “HOME”. If your current “LIFE” (for the next few years roughly) is based out of Australia, then it is highly likely you are Non Resident. If you have doubt please do not hesitate to contact us for clarification.

    What the change does mean is that anyone currently living in Australia and enjoying the tax Exempt status on 90 plus day overseas assignments or on flexible short term overseas assignment, should seriously consider moving abroad after 1st July to become tax Non Resident rather than continuing to commute and be exposed to Australian tax. For those that travelled less than the 90 days there is no change to the previous treatment as they have been taxable in Australia throughout.

    I have put a little article up on our website and you are welcome to pass this email around to your friends as well.

  3. Am I an Australian resident for tax purposes?

    Non-residents - lodging an Australian income tax return

    Residency - overview

    Residency tests and tools
    There are four main tests for residency:

    When to apply
    More information

    Primary test – if you reside in Australia according to the ordinary meaning of the word, you don’t need to apply any of the other 3 tests
    Residency – the resides test

    Statutory tests – if you don’t satisfy the resides test (the primary test) you may still be considered an Australian resident if one of the 3 statutory tests is satisfied.
    Residency – the domicile test

    183 day rule
    Residency – the 183 day test

    Residency – the superannuation test

    Case study to determine residency for taxation purposes:

    Bronwyn – an extended job overseas

    Bronwyn, a resident of Australia, has received a job offer to work overseas for three years, with the option to extend for another three years.

    Bronwyn, her husband and three children decide to make the move.

    They retain their property in Australia, as they intend to return one day.

    The house will be rented out during their absence.

    Bronwyn is uncertain whether she will extend the option to stay after three years, and will decide later, depending on how the family like the life there.

    While overseas, they will rent a house with an accommodation allowance provided under her contract.

    Outcome: why is Bronwyn considered a non-resident?

    The following table outlines the reasons why the four residency tests were not satisfied.

    This test is not satisfied because...

    the length of Bronwyn’s physical absence from Australia and the surrounding circumstances (such as establishing a home overseas with her family and renting out her family home in Australia) are not consistent with residing in Australia, even though she has retained the family home in Australia

    her permanent place of abode is outside Australia due to:

    the length of time she has committed to spending overseas

    establishment of a home overseas, and

    her family accompanying her.

    the fact that she will not be selling the home in Australia, although relevant, is not persuasive enough to overcome the finding on the basis of the other factors.

    it is arguable that she has abandoned her home in Australia for the duration of her stay, by renting it out.

    183 day rule
    this does not apply from the date of her departure for overseas.

    this does not apply.

    Electoral roll
    Can I have my name removed from the electoral roll?
    The Electoral Act allows for the removal of names from the roll only for a number of specific reasons. These include: death of elector, elector of unsound mind (medical certificate required), elector not an Australian Citizen and elector moving overseas indefinitely/permanently.

    More information can be found in our publication No. 17 - Compulsory Voting [PDF 61k] (This edition is currently being revised and updated).

    Overseas Notification Form
    This form applies to you if you are:
    Going overseas permanently or indefinitely
    If you are going overseas permanently or indefinitely you must complete and submit an Overseas Notification Form requesting to be removed from the roll. You will not be able to vote while overseas and you will need to re-enrol after you live back in Australia for one month. The removal process requires the AEC to issue formal written advice to an elector.

    Fill in the attached form and send it off asap.