Governments throughout the world have been forced to take unprecedented action to restrict the spread of COVID 19. They have restricted travel and enforced quarantining to reduce the spread of the virus.
As a result of government responses to COVID 19, the working arrangements of many people have changed. Some people may no longer be able to perform their work in their place of employment. Many foreign aid organisations have sent their workers home to keep them safe.
Australian foreign aid workers forced to return home may lose their eligibility for tax exemptions that were available while working overseas.
The ATO released a fact sheet to clarify the position in relation to the early return from foreign service due to COVID 19. It has confirmed that individuals will need to meet the usual requirements of S 23AG of the ITAA 1936 for the income to be exempt. There is no discretion available, even if someone has returned to Australia earlier than planned because of COVID 19.
To be eligible for the exemption you must be engaged in foreign service for a continuous period of not less than 91 days. Any period of absence from foreign service will break the continuity of your foreign service, unless the absence:
- Counts as foreign service, or
- Does not exceed one-sixth of your total period of foreign service.
The ATO fact sheet specifically says that ‘An absence from foreign service because you have returned to Australia as a result of COVID-19 and commenced working in Australia is not a temporary absence from foreign service that falls into these situations. You are returning without knowing when you can recommence your service in the foreign country. Your time in Australia cannot be characterised as a short work-related trip.’
What you need to know
If you earned exempt foreign employment income from foreign service, you need to be aware of the following:
- You need to have met the 91 days of continuous foreign service before returning to Australia.
- Where you have met the 91 days of continuous foreign service, the income you derived before returning to Australia will be eligible for the exemption and therefore will not be assessable in Australia, even if it was paid to you after your return. Paid leave that accrued during your foreign service will also be exempt.
If you have not met the 91 days test, the income will be assessable in Australia.
What happens if you work on the same project while in Australia?
While you are in Australia if you continue to work on the same matters relating to your foreign service this income will not be exempt because:
- The work you perform in Australia will not be work performed in a foreign country; and
- The return to Australia will not meet the criteria for your absence to be treated as foreign service
Therefore the income will be assessable in Australia.
Need some advice?
If you need advice regarding your foreign employment income, reach out to our Expat Tax Services team today. We will be glad to assist you with sound tax advice.