If you receive foreign income it is very important that you declare it. The ATO have announced that the gloves are off when it comes to the underreporting of foreign income.
How you are taxed and what you are taxed hinges on your residency status for tax purposes. This can be different to your general residency status so if unsure you should seek clarification.
Let’s look at the different residential statuses for tax purposes:
• Australian Resident
• Foreign Resident
• Temporary Resident
Australian Resident – taxed on worldwide income including money earned overseas (such as wages, director’s fees, rental income, other investment income or gains from the sale of assets).
Foreign Resident – taxed on their Australian sourced income and some capital gains. Unlike Australian resident taxpayers, non-resident taxpayers pay tax on every dollar of taxable income earned in Australia starting at 32.5% although lower rates can apply to some investment income like interest and dividends.
There is no tax-free threshold. Australian sourced income might include Australian rental income & income for work performed in Australia.
Temporary Resident – Generally, this is for those who have come to work in Australia on a temporary visa and whose spouse is not a permanent resident or citizen of Australia. Temporary residents are taxed on Australian sourced income but not on foreign sourced income. In addition, gains from non-Australian property are excluded from capital gains tax.
Interesting Things to Note
Working outside of Australia for a period of time does not mean you are not a resident for tax purposes during that period.
Do you have an international investment? Just because the asset might be located overseas does not mean they can’t be taxed by Australia, even if the cash stays outside of Australia. Also don’t assume that just because your foreign income has already been taxed overseas or qualifies for an exemption overseas it is not taxable in Australia.
How Your Money is Being Tracked
The ATO shares the data of foreign tax residents with over 65 foreign tax jurisdictions which includes band account information, dividend payments, proceeds from the sale of assets and more.
The Australian Transaction Reporting and Analysis Centre (AUSTRAC) also shares data with the ATO on flows of money to identify individuals that are not declaring income or paying their tax.
What You Need to Declare in Your Tax Return
If you are an Australian resident for tax purposes you need to declare all worldwide income in your tax return unless a specific exemption applies (although in some cases even exempt income needs to be reported). Income is anything you earn from:
• Employment (including consulting fees)
• Pensions & Government payments
• Business or trust income
• Crowdfunding
• The sharing economy
• Some prizes and awards
• Some insurance or workers compensation payments
Remember it was not declaring income that brought down Al Capone!
Do I Need to Declare Money from Family Overseas?
A gift of money is generally not taxable, but if the gift is from an entity or if it is regular & supports your lifestyle then the ATO may consider it to be income.
Do You Have Overseas Assets that You Haven’t Declared?
If you have overseas assets that you have overlooked declaring you have two choices.
1. Do nothing – not recommended as you will need to be prepared to face the full weight of the law.
2. Work with the ATO to make a voluntary disclosure (your accountant can help you with this), by making a disclosure it will usually significantly reduce penalties especially where the oversight is a genuine mistake.
How to Repatriate Income or Assets?
Before moving funds out of an overseas account, company or trust it is important to ensure that you seek advice on the implications in both Australia and the other country involved. This is a complex area and the interaction between the tax laws of different countries requires careful consideration to avoid unexpected consequences.
As different countries have different ways of calculating Capital Gains tax for example you have to be very careful how you do things as the amount of tax you end up paying could be a big shock to you.
