Income from assets and investments
Individuals with assets or investments located outside of Australia, including offshore bank accounts, are required to declare the relevant returns as if they were earned within Australia. This may encompass the following types of income:
Interest derived from bank deposits or bonds
Dividends received from shares
Royalties associated with intellectual property
Rental income generated from real estate
Pensions, annuities, and lump sum payments from managed funds
Income streams from superannuation funds
Attributed income from foreign entities
Certain government pensions
Capital Gains on Overseas Assets
For those who own assets overseas, Australian capital gains tax may apply upon the sale of such assets. It is essential to maintain appropriate records for this purpose. If an overseas asset was acquired prior to becoming an Australian resident, it is treated as if it were acquired upon attaining residency. Similarly, if an individual ceases to be an Australian resident while owning an overseas asset, it will be treated as though it has been disposed of at that time. Accurate calculation of capital gains or losses requires thorough record-keeping of the asset's value at these critical points. Given the complexity of this area of tax law, exemptions may be applicable.
For Australian residents for tax purposes, the following key points apply:
Individuals holding temporary resident visas are generally not subject to tax on most foreign income in Australia. However, income from actual work performed overseas while residing temporarily in Australia may be taxable.
Foreign income may potentially be taxed in both Australia and the foreign country of origin. Taxes paid in another country may qualify for an Australian foreign income tax offset.
If revenue is generated from a country with a tax treaty established with Australia, residents can present a certificate of residency along with an overseas tax relief form to the respective tax authorities. This could lead to reduced withholding taxes or exemptions from taxation in that country, contingent upon their taxing rights over the income.
Tax payments on overseas earnings must adhere to specific guidelines. Employees of Australian Government agencies (excluding those belonging to a disciplined force) are now liable for taxes on income derived from Australian Official Development Assistance (ODA). Members of the disciplined forces engaged in ODA may still qualify for exemptions.
Foreign Income Tax Offset Eligibility
For individuals who have already paid taxes in the country where the income was earned, it may be possible to claim a foreign income tax offset. To be eligible, it is necessary to have paid taxes on the foreign income and possess records substantiating the tax payment. The foreign country must also have established taxing rights over the income in question; otherwise, a refund request may be pursued. The offset amount eligible may not always correspond directly to the taxes paid overseas, and for claims exceeding AUD 1,000, it is essential to calculate the foreign income tax offset limit to determine the entitlement.
Exemptions for International Employment Income
In certain circumstances, employment income from international work may be exempt from Australian taxation. Such situations include:
Specific types of foreign service
Employment on approved overseas projects
Work performed in Australia for particular international organizations
Overseas deployment with the Australian Defence Force
Participation in Australia–United States joint space or defense projects.
Further information regarding these circumstances, as well as the necessary conditions, can be found in the relevant documentation on tax-exempt income from foreign employment.
Conversion of Foreign Income
To report this information to the ATO when lodging your tax return, all foreign income, deductions, and tax offsets must be converted into Australian dollars. Depending on individual circumstances and types of income, one may utilize either the exchange rates applicable at specific times—guided by established translation rules—or an average exchange rate based on daily or monthly figures provided monthly.
For more information or assistance please contact Infinite Accounting Solutions on 02 9899 4730 or via the contact page at www.ias-ca.com.au.