Are Australians working overseas on short-term contracts subject to Australian tax? No short answer can be given to this question. Sometimes they are, sometimes they are not.
You may well ask "how will the Australian Taxation Office know if I have earned any money overseas if I do not tell them?" You should remember that the Taxation Office will receive automatic reports from financial institutions of any amounts exceeding $5,000 brought in from overseas.
To ascertain your status, you should follow the following steps.
1) Does a Double Taxation treaty exist between Australia and the country you worked in? If so, consult it to ascertain your rights.
2) Was your overseas employment of less than 91 days duration? If yes, consult the rules regarding short-term overseas employment.
3) Did your overseas employment exceed 90 days in duration? If yes, then consult the rules regarding 91 days- or-more overseas employment.
The following sets out the rules in outline.
Income from short-term overseas employment can be split between income from non-treaty countries and income from treaty countries. Australia has concluded Double Taxation treaties with the following countries viz. Austria, Belgium, Canada, China, Denmark, Fiji, Finland, France, West Germany, Hungary, France, Ireland, Italy, Japan, Korea, Malaysia, Malta, Netherlands, New Zealand, Norway, Papua New Guinea, Philippines, Singapore, Sri Lanka, Sweden, Switzerland, Thailand, U.K., U.S.A.. Broadly, the treaties cover cases where a person or business is a resident of one country but has received income from the second country. The treaty sets out what tax is payable in such circumstances. No two treaties are identical. Consequently, if you are an Australian resident who has worked for a short time in any of the above countries, you should consult the relevant Double Taxation treaty to ascertain your rights.
If the period of overseas service is shorter than 91 days, then the person will be subject to Australian tax. However, any tax paid overseas on the income will be offset against the Australian tax. If the overseas tax exceeds the Australian tax, then no Australian tax will be payable. If the overseas tax is less than the Australian tax, then he will pay the difference only in Australia.
Assume an engineer is sent by his firm on a month's assignment to Indonesia. His wages for the month are $4,000. He pays Indonesian tax on his wages of $800. His Australian tax on the wages is $1,000. He will ultimately pay Australian tax only of $200 on his $4,000 wages. This is $1,000 Australian tax less a credit of $800 for Indonesian tax paid.
Basically, where the overseas employment exceeds 90 days, it is exempt from Australian tax. However, this exemption does not apply if the employment is in a country which imposes no income-tax on wages. These are generally "tax-haven" countries. The period of 91 days includes ordinary recreational leave. Long-service leave and leave without pay is not included in the period of overseas service.
In certain circumstances where two or more periods of overseas service are less than 90 days each, they can be aggregated and treated as one continuos period of service. This, of course, makes the income non- taxable in Australia.
Where the tour of duty exceeds 90 days, it is important to note that tax does not actually have to have been paid in the overseas country to make the income exempt in Australia. It is only necessary that the country should impose tax on wages in general.
Let us take an example. John Smith serves overseas as a pilot on a six-month contract. The country has no Double Taxation treaty with Australia. His contract states that he is entitled to two months rest and recreational leave in Australia. His wages are taxable in the overseas country but, due to the war-torn conditions prevailing in the overseas country, no tax is ever actually collected. No Australian tax is payable by John Smith on his overseas earnings.
The rules may be summarised as follows.
1. 1 to 90 days employment. Taxable in Australia. Generally, taxable in foreign country . Credit given against Australian tax for overseas tax paid.
2. 91 to 180 days employment. Non-taxable in Australia. Taxable in foreign country.
3. over 180 days employment. Same as 2 above i.e. non-taxable in Australia and taxable in foreign country.
Each treaty differs from the next but they are all similar in broad outline. Treaties generally state that overseas employment income of less than 180 days is taxable only in Australia. Overseas employment exceeding 180 days is non-taxable in Australia but taxable in the overseas country. The situation may be broadly summarised as follows. However, the individual treaties should be consulted in all cases.
1. 1 to 90 days employment. Taxable in Australia. Non-taxable in foreign country.
2. 91 to 180 days employment. As 1 above i.e taxable in Australia and non-taxable in foreign country.
3. over 180 days employment. Non-taxable in Australia. Taxable in foreign country.
DISCLAIMER: See disclaimer on home page.