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Taxation Administration: Individuals Engaged in Foreign Service Variation Notice 2019

Taxation Administration: Individuals Engaged in Foreign Service Variation Notice 2019

Administered by Department of the Treasury

Legislation au F2019L01282 In force Legislative Instrument

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Explanatory Statement

General outline of instrument

This instrument is made under Section 15-15 of Schedule 1 to the Taxation Administration Act 1953.
The pay as you go withholding system allows many taxpayers to make provision for their income tax liabilities by requiring payers to withhold amounts from certain income payments, including payments made to individuals employed in a foreign country or countries. This instrument allows employers to vary the amount of pay as you go withholding in Australia based on the amount of tax paid in a foreign country.
The instrument is a legislative instrument for the purposes of the Legislation Act 2003.
Under subsection 33(3) of the Acts Interpretation Act 1901, where an Act confers a power to make, grant or issue any instrument of a legislative or administrative character (including rules, regulations or by-laws), the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument.

Date of effect

5. The instrument applies from the day after it is registered on the Federal Register of Legislation.

What is this instrument about

6. The purpose of this instrument is to ensure the withholding from payments made to individuals employed in a foreign country or countries closely approximates the Australian income tax that will be payable on the relevant income.

7. The instrument is necessary due to the amendments to section 23AG of the Income Tax Assessment Act 1936, effective from 1 July 2009.

What is the effect of this instrument

8. The effect of this instrument is to ensure that amounts withheld from payments made to individuals engaged in foreign service under the pay as you go withholding system for Australian taxation purposes are calculated with consideration to the amount of tax that is required to be withheld for the relevant payment period and paid to the foreign country for that service.

9. The instrument allows payers to reduce the Australian dollar equivalent of the amount that would normally be withheld in Australia under the relevant pay as you go withholding tax table by the Australian dollar equivalent of the amount of tax to be withheld and paid to the foreign country.

10. Without this instrument, tax withheld for affected employees could be too high unless they choose to apply individually for a variation to consider their entitlement to a foreign income tax offset.

11. The information in this instrument will be used by Australian payers, professional advisers, software developers and the Australian Taxation Office.

12. An assessment of the compliance cost impact indicates that he impact will be minor for both implementation and on-going compliance costs. The new instrument is of a minor or machinery nature.

Background

13. The Taxation Administration Act 1953 empowers the Commissioner to make withholding schedules specifying the amounts, formulas and procedures to be used for working out the amount required to be withheld by an entity from certain categories of payment, including payments made to employees that are engaged in a foreign country or countries.

14. The Taxation Administration Act 1953 further empowers the Commissioner to vary the rate of withholding specified in the schedules to meet the special circumstances of a particular case or class of cases.

15. The Commissioner uses these powers to ensure that amounts withheld, in most cases, closely approximate the amount of income tax which will ultimately be payable in Australia on the relevant income.

16. In the 2009-10 income year changes were made to the exemption rules for foreign employment derived by Australian residents who are engaged in foreign service for a continuous period of 91 days or more.

17. The Tax Laws Amendment (2009 Budget Measures No.1) Act 2009 provides that, from 1 July 2009, income derived from foreign service is exempt from income tax only when directly attributable to any of the following:

(a) the delivery of Australian official development assistance by the person’s employer;

(b) the activities of the person’s employer in operating a public fund covered by item 9.1.1 or 9.1.2 of the table in subsection 30-80(1) of the Income Tax Assessment Act 1997 (international affairs deductible gift recipients);

(c) the activities of the person’s employer, if the employer is exempt from income tax because of paragraph 50-50(1)(c) or (d) of the Income Tax Assessment Act 1997 (prescribed institutions located or pursuing objectives outside Australia);

(d) the person’s deployment outside Australia as a member of a disciplined force by:

(i) the Commonwealth, a State or a Territory

(ii) an authority of the Commonwealth, a State or a Territory or

(e) an activity of a kind specified in the regulations.

18. The changes remove the income tax exemption for income that would have been otherwise exempt prior to 1 July 2009, meaning that income will need to be included in individual tax returns. Affected taxpayers may be entitled to a foreign income tax offset for amounts of foreign tax paid.

19. This instrument will continue with the present withholding requirements to ensure that the amount required to be withheld in these circumstances better matches the amount of income tax which will be payable on the relevant income.

20. The instrument is substantially the same as the previous instrument that it replaces. An entity that satisfied the requirements of the previous instrument will satisfy the requirements of this instrument.

Consultation

21. Section 17(1) of the Legislation Act 2003 requires that reasonable and appropriate consultation is undertaken before this instrument is made. For this instrument, broad public consultation was undertaken for a period of 2 weeks commencing on 9 August 2019. The draft instrument and draft explanatory statement was published on the ATO legal database. Publication was advertised via the ‘What’s new’ page on that system and via the ‘Open Consultation’ page on ato.gov.au. Major tax and superannuation publishers and associations monitor these pages and include the details in the daily and weekly alerts and newletters to their subscribers and members. This ensures advice of the draft is disseminated widely across the tax professional community, and that they are in an informed position to provide comments and feedback.

No comments were received.

Legislative references:

Acts Interpretation Act 1901

Human Rights (Parliamenatry Scrutiny Act) 2011

Legislation Act 2003

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

Taxation Administration Act 1953

Tax laws Amendment (2009 Budget Measures No. 1) Act 2009

Statement of compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Taxation Adminstration: Individuals Engaged in Foreign Service
Variation Notice 2019

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Legislative Instrument

The effect of this instrument is to allow employers to reduce the amount of Australian pay as you go withholding from payments made to Australian individuals by the amount of tax withheld and paid to a foreign country where the income was earned. This will ensure that the amount of tax withheld from each individual will be broadly equivalent to the amount of tax payable on that income in Australia.

Human rights implications

This Legislative Instrument does not engage any of the applicable rights or freedoms because the new instrument is of a minor or machinery nature. The instrument sets out to ensure that the amount required to be withheld in these circumstances better matches the amount of income tax which will be payable on the relevant income.

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

Overview

The Taxation Administration: Individuals Engaged in Foreign Service Variation Notice 2019 was enacted under section 15-15 of Schedule 1 to the Taxation Administration Act 1953. This instrument addresses the need to ensure that the withholding of income tax from payments made to individuals employed in a foreign country or countries closely approximates the Australian income tax that will be payable on the relevant income, particularly following amendments to section 23AG of the Income Tax Assessment Act 1936, effective from 1 July 2009. The instrument was introduced to allow employers to adjust the amount of pay as you go withholding in Australia based on the amount of tax paid in a foreign country, thereby ensuring that the withholding amount is consistent with the amount of tax that will ultimately be payable in Australia. The instrument is necessary to prevent excessive withholding unless the employee applies individually for a variation to consider their entitlement to a foreign income tax offset. This instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011, as it does not engage any of the applicable rights or freedoms due to its minor or machinery nature.

Scope and Application

The Taxation Administration: Individuals Engaged in Foreign Service Variation Notice 2019 applies to employers of Australian residents who are engaged in foreign service, specifically in contexts where income derived from such service is subject to Australian income tax. The Act allows employers to adjust the amount of pay as you go withholding based on the tax paid in the foreign country, ensuring that the total tax withheld from the employee's income closely approximates the Australian income tax payable on that income. This instrument is made under Section 15-15 of Schedule 1 to the Taxation Administration Act 1953 and extends to payments made to individuals employed in a foreign country. It applies from the day after it is registered on the Federal Register of Legislation. The purpose of this instrument is to align the tax withholding with the tax liabilities that will be incurred in Australia, reflecting changes to the Income Tax Assessment Act 1936 effective from 1 July 2009. There are no stated exclusions or exemptions in this instrument, but it is noted that the instrument is of a minor or machinery nature with minor compliance costs.

Key Provisions

The main operative sections of the Taxation Administration: Individuals Engaged in Foreign Service Variation Notice 2019 (F2019L01282) enable employers to adjust the amount of pay as you go (PAYG) withholding in Australia based on the tax paid in a foreign country (section 33). Employers can reduce the Australian dollar equivalent of the amount that would normally be withheld in Australia by the Australian dollar equivalent of the tax withheld and paid to the foreign country (section 9). This variation ensures that the withholding amount more closely matches the income tax that will be payable on the relevant income in Australia (section 8). The Act imposes specific obligations on employers and other payers to calculate and withhold the correct amount of tax from payments made to individuals engaged in foreign service. Employers must take into account the amount of tax already withheld and paid to the foreign country when determining the Australian withholding amount (section 9). This calculation ensures that the total tax withheld from the employee's income, combining both Australian and foreign taxes, aligns with the tax liability in Australia. Employers need to ensure that they comply with the new withholding requirements as outlined in this instrument to avoid over-withholding of tax from their employees. Failure to comply with the requirements of this instrument may result in incorrect withholding amounts being applied, leading to potential tax liabilities or refunds for the affected employees. While specific penalties for non-compliance are not mentioned in the instrument, general tax compliance penalties under the Taxation Administration Act 1953 could apply. These penalties may include fines and other civil or criminal consequences depending on the nature and extent of the non-compliance. Employers should ensure that they adhere to the guidelines set out in this instrument to avoid any potential penalties or liabilities arising from incorrect withholding calculations.

Area of Law: Taxation Law
Instrument: Legislative Instrument
Concepts: Definitions & Interpretation; Compliance Obligations; Offence Provisions

Interactions

Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.

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