If you have any employees that are working in a foreign country, you need to be aware of your pay as you go (PAYG) withholding obligations.
Foreign earnings that do not meet any of the exemption conditions are assessable income and subject to PAYG withholding requirements. These earnings should be included in your employee’s income tax return as assessable income. They may be entitled to a foreign income tax offset for amounts of foreign tax paid.
Some payments for foreign services that relate to certain development projects, and charitable or government activities are exempt from tax. Your foreign employment income is except from tax if all of the following applies:
- you are an Australian resident
- you are engaged in continuous foreign service as an employee for 91 days or more
- your foreign service is directly attributable to any of the following
- delivery of Australian ODA by your employer (except if your employer is an Australian Government agency)
- activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund
- activities of your employer in operating a public fund established and maintained to provide monetary relief to people in a developing foreign country who are distressed as a result of a disaster (a public disaster relief fund)
- activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax because it is located outside Australia or the institution is pursuing objectives outside Australia
- deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force
- you are not excluded from exemption by the non-exemption conditions.
If your foreign service is not directly attributable to these behavior, you will need to include the foreign employment income in your tax return as assessable income.