Receive any foreign income? Here’s why you could be on the Tax Office’s radar
Article by Donna Gillies
Pop Quiz: As an Australian resident, are you taxed only on income received within Australia?
Answer: No. You are taxed on your worldwide income.
The Australian Taxation Office (ATO) requires you to declare all your foreign income no matter the size and the source. So as an Australian resident for tax purposes, it pays to be upfront in declaring in your income tax return any income from overseas countries.
Why does this matter more now than ever?
Two reasons: Firstly, the ATO is now focusing on this type of undeclared income, so you could be on their radar; and secondly, the ATO now has the means to track down this type of income more easily.
The Global Standard Putting More Data at the ATO’s Fingertips
Due to what’s called the Common Reporting Standard (CRS) for the collection, reporting and exchange of financial account information on foreign tax residents, the ATO now has efficient access to information from more than 1.6 million foreign accounts from 65 countries including China, the United Kingdom, Switzerland, Singapore and the United States.
These accounts include:
- depository accounts,
- debt or equity accounts,
- cash value insurance and
- annuity contract accounts.
The data available to the ATO for these types of accounts can include:
- the account balance,
- interest payments,
- dividend payments,
- proceeds from sale of assets and
- other income.
CRS allows the ATO to receive data from other countries’ tax jurisdictions for Australian residents and there are already international data sharing agreements too.
So if you’ve earned it, declare it, no matter where in the world it was earned.
What Types of Foreign Income Should You Declare?
Foreign income may include:
- bank accounts,
- dividends received,
- employment income,
- director fees,
- rental income from a foreign property,
- superannuation fund income streams or pensions,
- business and consulting or
- proceeds from the sale of a foreign asset.
What If You’ve Already Declared Income In A Foreign Income Tax Return?
Even if you have declared your foreign income in that country’s income tax return, you are still to declare that income in your Australian income tax return.
Does this mean you will be double taxed?
Not necessarily. If you have paid income tax in the foreign country, you may be able to claim a foreign income tax offset in your Australian income tax return due to tax treaties with these countries called Double Tax Agreements (DTA).
The Information We Need As Your Accountant and Tax Agent
Due to CRA and modern technology at the ATO’s disposal, it is difficult these days to hide your income overseas. It makes sense then to be proactive and provide details of all your foreign income to your Accountant to ensure your income tax return is complete.
Don’t worry if the information is in a foreign language. We have ways of translating your documents. Ideally provide the foreign income figures in Australian Dollars but if that’s not possible, we can convert the amounts using foreign exchange rates published by the ATO.
You’ll be happy to hear that it’s not all about declaring income. You can claim tax deductions too. Any foreign income can be offset with associated deductions, so be sure to provide these details too.
Where It Can Get A Little Tricky
The reporting of foreign income and the associated foreign income tax offsets can be complicated, as some countries have a different income reporting period—that is, different Financial Year dates—to Australia. For this reason, sometimes you must report your foreign income over multiple Australian tax returns.
Due to these complexities, whenever you receive foreign income it’s a good idea to consult your Accountant for advice on how to report it.
Voluntary Disclosure: Why It’s Always Better To Contact the ATO, Than To Have THEM Contact YOU
If you think you may have omitted foreign income from tax returns already lodged, it’s wise to get on the front foot and contact the ATO to make a voluntary disclosure. Contacting the ATO before they contact you, could allow you to have a reduction in any penalties or interest. Please contact us if you need assistance with this.
What About Temporary and Foreign Residents of Australia?
Generally, temporary and foreign residents of Australia are only taxed by the ATO on their Australian sourced income.
Need More Information?
Please contact SRJ if you have any questions or would like us to assist you with reporting of your foreign income in your income tax return.
Remember, in the digital era there’s no hiding income and it’s better to be proactive and transparent with the ATO.