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Taxation of Foreign Income in Australia

Australian Taxation of Foreign Income

In very general terms, when you become a resident of Australia, unless you are a temporary resident, any income earned overseas such as rental income from foreign properties and dividends paid by foreign public or private companies, as well as capital gains, will be taxable in Australia.

Because income earned overseas may also be taxed by the country in which it was earned, for example dividends may be subject to withholding tax, the Australian investor will usually receive a return net of foreign tax. However, the Australian tax rules require you to include in your tax return the full entitlement to income (ie. gross income) before any foreign tax is deducted. The foreign tax paid can then be claimed as a credit or offset against any Australian tax payable on that foreign income, to prevent double taxation occurring. The credit is limited to the lesser of the Australian tax payable on the foreign income or the foreign tax deducted overseas.

You may also have expenses associated with your foreign investment income. These can be claimed as tax deductions against your foreign income, but there is a limit to how much of these expenses you can claim in any year. The deduction in any one year is limited to the amount of the foreign income that you receive. If your expenses exceed your foreign income, you cannot claim them in that particular year. You need to carry them forward to claim against foreign income in future years. However, interest expense incurred on a loan that generates foreign income will be deductible.

On a practical note, one slight difficulty that arises is the requirement that you include foreign income in your tax return expressed in Australian dollars (AUD). The exchange rate that you use depends on what happens to the income. If the income is remitted back to Australia, you use the tax rate at the date of receipt. If the income is held overseas, for example in a foreign bank account, the exchange rate used is the rate at the end of the (tax) year.

As far back as July 1, 2003 rules were introduced relating to foreign currency accounts. These rules require you to take into account foreign exchange rate gains and losses and exceptionally complex; advice in this area should only be sought from an experienced tax advisor.

The need to express overseas income and expenses in AUD, and the fact that overseas tax years will often be different to those in Australia, means that some professional advice from experienced practitioners, at an early juncture, is advisable.

If you would like to arrange professional advice please complete the Inquiry form below providing details and you will be contacted promptly.

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