The Australian Taxation Office (ATO) has identified under-reporting of foreign income is an issue. 5 years ago, the ATO gave a reprieve for those who should have been penalised for not disclosing foreign income. But this time it’s not being treated lightly, as the ATO Cracks Down on Foreign Income
If you have foreign income to be reported it is important to know:
- Your resident status for tax purposes
- How your money is being monitored
- Declaration Requirements
Your resident status for tax purposes
This determines how and what you are taxed. It can often cause confusion as there can be a status difference between tax residency and general residency meaning it’s important to ensure your understanding is correct.
For tax purposes, an Australian resident is taxed on income received anywhere in the world (yes! that includes overseas) This income can come from various sources including employment, director and consulting fees, investment and rental income plus earnings from the sale of assets.
A foreign resident for tax purposes is only taxed on income received in Australia (usually from rental income and work done in Australia) plus some capital gains. There is no tax-free threshold meaning tax is paid on every dollar of taxable income earned in Australia starting at 32.5%. Income received from investments such as interest and dividends may have lower rates.
Generally, those who have come to Australia on a temporary visa to work and whose spouse isn’t a permanent Australian resident or citizen are regarded as temporary residents for tax purposes. These residents pay tax on any income originating from Australia only, are not taxed on any income received gains from property not in Australia and are exempt from capital gains tax (CGT)
Earnings from international investments must also be considered. An asset located overseas isn’t exempt from the Australian tax law. Even if classified as an exemption, foreign income can be taxed twice – both overseas and in Australia.
How your money is being monitored
Many Australians have dealings with overseas countries for various purposes. Details on account holders, balances, interest and dividend payments, earnings from the sale of assets plus other income is given by the ATO to more than 65 foreign tax jurisdictions regarding foreign tax residents as the ATO Cracks Down on Foreign Income.
The Australian Transaction Reporting and Analysis Centre (AUSTRAC) give data to the ATO and the Department of Human Services to enable them to identify those failing to pay their taxes and/or declare income.
Foreign income received from an investment such as a business or rental property can be an oversight and not declared with issues often arising only when that income is bought into Australia. AUSTRAC or the ATO’s has data matching technology able to identify this and as a result, the taxpayer is contacted with a please explain.
Unless a set exemption is applicable, all worldwide income is required to be declared when Australian residents lodge a tax return. Generally, income is anything earned from employment (including consulting) plus pensions. Annuities and payments received from the government plus income received from a business, partnership or trust. Other income includes crowdfunding, sharing economy and some insurance and workers compensation payments (generally for loss of income).
Also required to be declared are some prizes and awards (including if it was sold for a financial gain). Prizes received from lotto or game shows or ad-hoc gifts are not required to be declared. If you received money as a gift, this is generally not taxable but limits do apply.
In terms of foreign income, this must be declared including pensions and annuities. Income earned from the business, income earned from employment (including consulting). Assets and investment income (including offshore bank accounts, and capital gains on overseas assets)
If you have overseas assets not declared you can choose to do nothing. However, be ready to face the applicable penalties or co-operate with the ATO and disclose the assets which in turn can greatly reduce potential penalties and charges.
Prior to transferring funds from an overseas account, company or trust it is important to make sure you are aware of the implications. Both Australia and the overseas country. To prevent surprising and costly consequences, careful thought and professional advice is advised.
Are you unsure of your tax residency status? Need professional advice on foreign income? – Contact HBG Tax and Accounting
The team at HBG Tax and Accounting are your local Rockingham accountants. With extensive experience in all areas of accounting and tax. Call the team on 08 9594 1963 to discuss your tax needs. You can call in and speak to the team at Unit 7, 12 Belgravia Terrace, Rockingham.
The material and content provided in this article is of informative nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.