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AJML Accountants Update – October 2020

Residency for tax purpose – Part 16

Approved overseas projects

Your foreign employment income may also be exempt if it is paid for foreign service in connection with an overseas project approved by Austrade.

Continuous foreign service

For the exemption from Australian tax to apply, your foreign service must be for a continuous period of 91 days or more.

Any period of absence from foreign service breaks the continuity of your foreign service, unless either of the following apply:

The ‘one-sixth test’

Absences that would otherwise break the continuity of your period of service for the purposes of the ’91 days or more’ requirement can be bridged by applying the one-sixth test. The one-sixth test means that as long as your absences don’t exceed one-sixth of your period of service, the absences won’t break the continuity of that service.

Absences that still count as foreign service

Some temporary absences during a period of foreign service still count as foreign service and will not affect continuity of the service. These are periods where, in accordance with the terms and conditions of your service, you are absent due to one of the following:

  • recreation leave that wholly relates to the current period of foreign service but does not include long service leave, leave without pay, extended leave or similar leave
  • leave for accident or illness
  • compassionate leave on account of an accident to, or the illness or death of, another person
  • short business trips to Australia or another country that are directly related to your foreign service, provided they are not considered to be an excessive break
  • breaks taken back in Australia – such as weekends, public holidays, rostered days off, compulsory lay-off or layover days, grounded days, flexidays and days off in lieu – provided they are not considered to be an excessive break.

Excessive break

An ‘excessive break’ occurs when absences from foreign service, which are subject to the ‘excessive break test’, total more than either of the following:

  • one-sixth of the period of scheduled foreign service
  • one-sixth of the income year, if the foreign service is ongoing.