Relocation allowances to relocate an employee overseas

29 July 2011

This month the ATO has clarified its position on the assessability of allowances received from employment in a foreign country.

The issue was whether the allowances for relocating to a foreign country and remunerating a taxpayer for the costs of relocating back to Australia are assessable as part of the taxpayer’s income in Australia if a taxpayer is:

  • Resident of Australia for tax purposes
  • Employed in a foreign country for more than 91 days and
  • The taxpayer’s salary is exempt foreign income under s23AG of ITAA 1936

The ATO’s perspective is that only the part of the allowance that relates to the taxpayer’s expenses overseas would be exempt foreign income under s23AG of ITAA 1936. The rules require that the foreign earnings be attributable to a period of foreign service.

For part of the allowance to be exempt the costs relating to that allowance have to be incurred at a time in which the employee was engaged in earning exempt foreign income. Any amounts incurred before or after the employment contract dates would not be exempt.

Want more information?

Contact Matt Zhou on +61 (0)2 9957 4033 or via our website contact page for more information about how this may relate to you or your employees.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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