In the 2009-10 Federal Budget, the government announced changes to the exemption rules for foreign employment income derived by Australian residents who are engaged in foreign service for a continuous period of 91 days or more. The exemption is provided under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936).

For fringe benefits tax (FBT) purposes, a person is an employee if they receive, or are entitled to receive salary and wages. Salary and wages includes a payment from which an amount must be withheld under the pay as you go (PAYG) withholding rules. Benefits provided to employees whose foreign employment income is exempt under section 23AG of the ITAA 1936 are not subject to FBT, but fringe benefits provided to employees whose foreign employment income is not exempt under section 23AG may be subject to FBT.

Tax Laws Amendment (2009 Budget Measures No. 1) Act 2009, which received royal assent on 29 June 2009 amended section 23AG of the ITAA 1936 to limit the exemption for foreign employment income to certain types of employment.

From 1 July 2009, an exemption from income tax on foreign employment income is only available if the person's foreign service is directly attributable to any of the following:

[  ]  the delivery of Australian official development assistance by the person's employer
[  ]  the activity of the person's employer in operating a public fund declared by the Treasurer to be a developing country relief fund; or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced a disaster
[  ]  the activities of the person's employer, being a prescribed institution that is exempt from Australian income tax
[  ]  deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force
[  ]  an activity of the kind specified in the regulations.

Existing rules that can operate to deny the exemption provided under section 23AG of the ITAA 1936 continue to apply.