Further to the unveiling of the 2009/10 Budget, Australia's Rudd government has announced "important new measures to ensure that workers who earn income overseas do not have an unfair advantage over workers who earn income and pay tax in Australi".
"The measures help improve the fairness and integrity of the tax system by better targeting the tax exemption for income earned by Australians earning income overseas. They will also protect Commonwealth revenues needed to support jobs and invest in vital nation-building in the face of the global recession", according to the government.
According to the country's Treasurer, Wayne Swan, the new measures are expected to provide an additional AUD675m (USD505m) over the forward estimates.
Currently, Australians working overseas for over 90 consecutive days are eligible for a general exemption which means they do not pay any Australian income tax on their foreign employment income.
This general exemption was provided to ensure that foreign employment income was not double-taxed, first in the country where the income was earned and then again in Australia.
However, many foreign countries are lower tax jurisdictions which means some Australians who earn income overseas are paying much less tax than if they earned income solely in Australia.
In addition, workers can use the general exemption to lower their taxable income for the purposes of accessing a range of government benefits.
Under the new measures announced on May 12, the government will amend the general exemption to provide a better targeted exemption which is only available for income earned:
Income earned by an individual employed on an overseas project approved by the Minister for Trade as being in the national interest will remain exempt, as provided for by existing rules.
To avoid Australians paying double tax, a tax offset will be available for any foreign tax paid on foreign employment income.
Lastly, the Treasury has announced that it will undertake stakeholder consultations concerning the legislation and administrative arrangements for these changes.
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