In a major surprise, the Treasurer has announced new arrangements for taxing foreign employment income earned by Australian resident taxpayers. 

The Government proposes that 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. 

The Treasurer has released exposure draft legislation to amend the current general income tax exemption for income earned in overseas employment contained within section 23AG of the Income Tax Assessment Act 1936 (ITAA 36).

The Government is accepting submissions in relation to this change up until Monday 18 May 2009!

This timeframe is clearly unrealistic as the draft legislation was only released last night. Moore Stephens is preparing a submission to argue against these ill conceived changes and needs your participation.

Proposed position

Under the measures in the proposed legislation, the general exemption will only apply to income earned by:

• an aid or charitable worker employed by a recognised non-government organisation; or
• a government aid worker; or
• a specified government employee (for example, defence and police force personnel deployed overseas).

Income earned by an individual employed on an overseas project approved by the Minister for Trade as being in the national interest will be exempt as well, as it is under the existing rules.

For all others foreign employment income will be fully taxable in Australia at resident tax rates.

Individuals will be able to claim a non-refundable tax offset for foreign income tax paid on that income.

However, many foreign countries levy tax at a lower rate than Australia so most Australian residents who earn income overseas would pay less tax than they would if they earned the income solely in Australia. As a result of the change individuals will end up paying more tax in Australia.

Current position

Section 23AG of the ITAA 36 is important to Australian residents who work overseas.  In broad terms, it grants an exemption from Australian income tax for foreign sourced employment earnings derived by an Australian resident in respect of overseas work assignments that are of at least 91 continuous days in duration in a location that ordinarily imposes income tax on that income.

Action

1. Moore Stephens strongly opposes the changes in their current form as we believe that this treatment is unnecessarily harsh on Australian working overseas. We will be lodging a submission in respect of the proposed changes.
2. Should you wish to comment and have your voice heard through our submission, please contact Moore Stephens no later than Thursday 14 May 2009.

Questions

Please contact Michael van Schaik, Associate Director, Employment & Remuneration Services.  
Phone: +61 (0) 3 8635 1835
Email: mvanschaik@moorestephens.com.au