Working Abroad? How to Report your Income

If you're an Australian resident for tax purposes, you are taxed on your worldwide income. You must report all your foreign employment income in your Australian tax return – both assessable income and exempt income. You must do this even if tax was taken out in the country where you earned the income.

Foreign employment income is income earned by an Australian resident working overseas as an employee. It includes salary, wages, commissions, bonuses and allowances. It may be paid by an overseas or an Australian employer.

Foreign income also includes:

foreign pensions and annuities
foreign investment income
foreign business income
capital gains on overseas assets.

As your foreign income may also be taxed in the source country, it is potentially subject to double taxation. To overcome this, Australia has a system of credits and exemptions and has signed Tax Treaties with more than 40 countries, including all our major trade and investment partners. This is commonly referred as “Double Tax Treaty”

For a list of these countries please see here

Since September 2018, the ATO have received and exchanged financial account information with participating foreign tax authorities to ensure that Australian residents with financial accounts in other countries are complying with Australian tax law. If you have foreign income that you have not disclosed, you may be liable to penalties and interest charges.

If you're not an Australian resident for tax purposes, you are only taxed on your Australian-sourced income, so you generally don't need to declare income you receive from outside Australia in your Australian tax return.

If you have a Higher Education Loan Program (HELP) or Trade Support Loan (TSL) debt and you're a non-resident for tax purposes – you'll need to declare your worldwide income or lodge a non-lodgment advice.

To work out your tax residency please see here

Exempt Income

You may be exempt from paying tax on your foreign employment income if you're: a member of an:

Australian defence or police force
organisation engaged in overseas aid work

For a full list of exempt foreign income please see here

Please be aware that you must still report this exempt income in your tax return.

Tax Withheld

Your Australian employer must withhold tax from non-exempt foreign employment income if they continue to pay you while you’re overseas.

If your foreign employer is not registered for Australian PAYG withholding, it's unlikely that they'll withhold any amounts for Australian tax purposes from payments to you. You'll have to report your total earnings in your Australian tax return and pay any tax liability that arises from this.

Reporting Foreign Tax

If you’ve paid foreign tax on your overseas income and it’s not exempt foreign employment income, you add the foreign tax back to your net employment income (this is called grossing up) to determine the assessable amount.

Include the income in your tax return as 'Assessable foreign income'.

Before you calculate your net income, you must convert all foreign income deductions and foreign tax paid to Australian dollars; see here

EXAMPLE:

Lachlan was employed in a foreign country from 15 October 2017 until 23 April 2018. He earned A$11,250 after he paid A$3,750 in foreign tax. He could claim a deduction of $A500 for work-related expenses.

After adding back the foreign taxes, Lachlan would have assessable foreign income of A$15,000. After claiming a deduction for his expenses, he would have net foreign employment income of A$14,500.

You may be able to claim a foreign income tax offset for the tax you’ve already paid.

Foreign Tax Offset

If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset, which provides relief from double taxation.

These rules apply for income years that start on or after 1 July 2008

To be entitled to a foreign income tax offset:

you must have actually paid, or be deemed to have paid, an amount of foreign income tax
the income or gain on which you paid foreign income tax must be included on your tax return

Differences between the Australian and foreign tax systems may lead to your paying foreign income tax in a different income year from that in which the income or gain is included in your income for Australian income tax purposes. You might have paid the foreign tax in an earlier or later income year. However, the offset can only be claimed after the foreign tax is paid.

Please note: Under the tax offset rules, the foreign income tax offset is applied after all other non-refundable tax and non-transferable offsets. Once your tax payable has been reduced to nil, any unused foreign income tax offset is not refunded to you, nor can it be carried forward to later income years.

This means that if you have paid higher tax in the source country you will not be refunded any difference in Australia

For further information on Foreign Income please call our office on 07 5502 6673 to book an appointment with one of our Qualified Accountants