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Australia Foreign Income Exemption Guide

Australian tax rules for the foreign income exemption. The guide covers: the foreign employment income exemption — the 'foreign employment income' (the 'salary and the wages earned by the Australian resident working overseas') is 'assessable income' in Australia (the 'worldwide income is taxable for the Australian residents'); the 'foreign employment income may be 'exempt from the Australian tax' under the 'Section 23AG of the ITAA 1936' — the 'foreign employment income exemption' is for the 'Australian residents' who are 'engaged in the 'foreign service' for the 'continuous period of 91 days or more''; the 'foreign service' is the 'work performed outside Australia' for the 'Australian employer' or the 'foreign employer'; the 'exemption' is 'limited to the income that is 'taxed in the foreign country'' (the 'income that is NOT 'subject to the foreign tax' is NOT 'exempt' under the 'Section 23AG'); the 'exemption' was 'amended from the 1 July 2023' — the 'Section 23AG exemption' is 'narrowed' — the 'exemption applies only to the 'foreign income that is 'subject to the foreign tax' and the 'foreign tax paid' is NOT 'eligible for the FITO''; the Foreign Income Tax Offset (the 'FITO') — the 'FITO' is the 'tax offset' for the 'Australian resident' who 'pays the foreign tax on the foreign income' — the 'FITO' 'reduces the Australian tax on the foreign income' to 'avoid the double taxation'; the 'FITO' is the 'offset' for the 'foreign tax paid' — the 'offset is the 'lower of': (i) the 'foreign tax paid on the foreign income', (ii) the 'Australian tax payable on the foreign income' (the 'FITO limit' — the 'Australian tax on the foreign income divided by the total tax'); the 'FITO' is 'non-refundable' — the 'excess FITO is NOT refunded' and is 'carried forward' for the 'certain foreign tax credits' (the 'excess FITO cannot be carried forward' for the 'individuals'); the temporary resident exemption — the 'temporary residents' (the 'individuals who hold the 'temporary visa' and are 'not the Australian citizens' or the 'permanent residents') are 'exempt from the Australian tax on the 'foreign employment income' and the 'foreign investment income' (the 'temporary resident exemption' under the 'Division 768 of the ITAA 1997'); the 'temporary residents' pay the 'Australian tax only on the 'Australian-source income' (the 'salary for the work in Australia', the 'Australian rental income', the 'Australian business income'); the 'temporary residents' are 'exempt from the CGT on the foreign assets' (the 'temporary resident CGT exemption'); the foreign deductions and the passive income — the 'Australian residents' with the 'foreign passive income' (the 'foreign dividends', the 'foreign interest', the 'foreign royalties') must 'include the foreign income in the assessable income'; the 'foreign tax paid' is 'eligible for the FITO'; the 'foreign investment income' may be 'subject to the Controlled Foreign Company (the 'CFC') rules' (the 'CFC rules may 'attribute the foreign income' to the 'Australian resident').

Foreign Employment Income

  • Section 23AG exemption: The 'Australian residents working overseas for 91+ days' may be 'exempt from the Australian tax'.
  • Foreign tax requirement: The 'exemption applies only if the 'foreign income is taxed in the foreign country'.
  • FITO for double taxation: The 'Foreign Income Tax Offset' 'reduces the Australian tax on the foreign income'.

For the cross-border tax and the foreign resident rules, see our Cross-Border Tax Guide →.

Temporary Resident Exemption

  • Exempt from the foreign income tax: The 'temporary residents' pay the 'Australian tax only on the Australian-source income'.
  • Foreign assets CGT exemption: The 'temporary residents are exempt from the CGT on the foreign assets'.

For the temporary resident tax treatment, see our Moving to Australia Guide →.