Written by Emily Baulderstone:
Under Australian Tax Law, income derived by an individual who is considered to be an Australian resident for tax purposes is subject to income tax whether this income was derived from an Australian or Foreign source.
Determining if you are an Australian resident for tax purposes can be a difficult issue depending on your circumstance, and is a matter of considering all relevant facts. If you are unsure about your residency status for tax purposes please contact us so we can help you through the process.
Generally speaking, if you, as an Australian Resident, receive income from a foreign source you are required to report the total gross amount as part of your assessable income in the relevant year. If you have paid foreign tax on this income you may be entitled to an Australian foreign income tax offset (FITO) to prevent double taxation. Under some circumstances this offset may be subject to a limit.
The following is a guide to various common items of foreign income that may be taxed in the hands of an Australian Resident.
- Employment Income – if you are considered to be an Australian resident for tax purposes but have income from employment overseas you will be taxed in Australia on this income. Generally, you are able to claim a foreign income tax offset (FITO) for any tax you have paid in the relevant foreign county, up to a limit.
Pensions & Annuities – most foreign pensions and annuities are included in the assessable income of an Australian resident, including where tax has been withheld from the payment by the source country. You may be able to claim a foreign income tax offset (FITO) if tax was withheld and you are not entitled to seek a refund from the withholding country.
- Investment Income – income (such as dividends, interest & royalties) from worldwide investments is taxable in Australia for Australian Residents. For example, you may have a bank account in your name in a foreign country, any interest you earn on money in this account is assessable in Australia. In some cases (depending on the tax laws in the relevant foreign country) there may be some tax withheld on this income when paid. In this case it is important to note that the total gross amount of the income (adding back any tax withheld) is to be reported as part of your assessable income.
- Capital Gains – generally, foreign sourced capital gains are subject to income tax in Australia under our Capital Gains Legislation. For example, you may own a house in a foreign country, if you dispose of this property and the proceeds of sale exceed the amount paid for the property you have a gain that will need to be reported as part of your assessable income. If you have held this asset for more than 12 months you may qualify for a 50% discount on the gain so that only half of the total gain is reported as part of your assessable income.
It is important to note that this general guidance may be affected by a double taxation agreement (DTA). Australia has more than 40 DTAs in place with various countries around the world, including the United Kingdom, USA, and New Zealand. These agreements are in place to allocate taxing rights over specific items of income so as to prevent double taxation and should be considered on an individual basis when assessing the taxation of foreign income.
This communication is general in nature and current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Should you wish to discuss any matter raised in this article, please feel free to contact us.