Taxation of Australian Residents on Fly In - Fly Out
Prior to July 1, 2009, section 23AG of the ITAA granted a tax exemption in relation to income earned overseas by Australian tax residents who met certain criteria - in particular that the overseas work assignments be of at least 91 continuous days duration in a location that usually imposed income tax on that income. Changes to s23AG were however announced within the Australian 2009 Budget and these took effect, after a very short and limited period of consultation, on 1 July 2009. The impact of the changes was to severely limit the scope of the previous tax exemption to Aid and charitable organisations, as well as certain government workers (for example, defence and police force personnel deployed overseas).
This means that for most Australian residents working overseas, foreign employment income will now be fully taxable in Australia at resident tax rates. However, income tax paid overseas may be claimed as a credit against Australian income tax. This means that the impact will be less for Australians working in highly taxed countries than for those working in countries where tax is lower. The position of Australians working in nil tax countries, such as in the Middle East, has not changed since they were not entitled to tax exemption under s23AG in any event.
Individuals working for aid, charitable and government organisations who believe they fall within the scope of the new s23AG must continue to meet a number of criteria:
- You need to be tax resident in Australia – FIFO arrangements will, by their nature, not normally break existing tax residency;
- You must be an employee, not a contractor;
- Your overseas service must be for a continuous period of at least 91 days; and
- Except in a limited range of circumstances, you must be subject to tax in the country(ies) you are working in.
Most Australian residents on FIFO arrangements only work on monthly rotations but they can still qualify for the 91 days continual service requirement. In determining the period of continuous foreign service, certain intervals when the taxpayer is absent in accordance with the terms and conditions of the service, such as recreation or sick leave, are included in calculating the 91 days. The period of continuous foreign service need not be measured on a year of income basis.
Where the period of continuous foreign service commences in one income year and terminates in another year, the entire period of service is taken into account in determining the availability of the exemption in each income year. For example, two periods of work can be grouped together as continuous if they are broken by temporary absences that do not exceed 1/6th of the total number of days of foreign service before the absence. But note that these days of temporary absences that are not due to illness, accident or recreational leave do not count towards the 91 days.
As an example, based on the above rules it is possible for an Australian resident to work overseas on a cyclical shift of 5 weeks overseas and then 5 weeks in Australia on leave and the whole period can be counted as overseas service (see IT 2015). Note that in this case that your income is considered “exempt income” and must still be included in your Australian tax return where it is taken into account in determining your Australian tax rate.
As you can see, there are a number of tax complexities involved in these arrangements and we would strongly recommend a tax briefing before you proceed to work on a FIFO basis.