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Foreign Income Tax – What do you need to declare?

Let’s face it – International travel has been a tad difficult over the last couple of years (thanks “Rona”!) Whether you were able to leave the island of Oz or not, there may be several reasons why you have received foreign income this financial year. Whatever the reason, if you have worked overseas or received any income from somewhere other than Australia, it’s important you know about foreign income tax!

The short of it – if you are an Australian tax resident, you may still have to pay tax if you are earning any form of foreign income – and foreign income can be made a few different ways:

Foreign Employment Income

First thing is first, what is foreign employment income? Foreign employment income is the money that you generate from any work that you do while overseas. This can include: 

  • Salary 
  • Wages
  • Commissions 
  • Director fees 
  • Consultancy fees
  • Business income 
  • Allowances 
  • And any other forms of income

Australian residents for tax purposes (work out if you are one here) are normally taxed on their worldwide income. Meanwhile foreign residents are only taxed on the money they make while in Australia. 

Australia has tax treaties with over 40 different countries, so each situation will be different depending on where you are. You can double check your tax report to be certain, or Contact Us to get some advice from our tax experts (aka “the Numbers Geeks”).

Other Sources of Foreign Income

Is it just the money you earn from your overseas job that you need to declare? Unfortunately not. Even the income you generate from foreign investments need to be declared to the ATO. You need to declare things like rental income tax to Australia. The different incomes other than employment income include:

  • Income from your assets and investments, such as rental income or shares
  • Capital gains that you have made on overseas assets, such as the sale of your investment properties or shares

Can I get an Exemption from Foreign Income Tax?

Foreign income by ATO standards does have exemptions in some cases. As a rule of thumb, you are exempt if: 

  • You are a police officer or a member of the Australian Defence Force 
  • You’re involved in overseas aid work 

There will definately be some grey areas within these definitions. So if you want to remove all doubt, Contact Us. 

How Your Foreign Income is Recorded

When reporting your foreign income, the income needs to be included before any local taxes and the amount of local tax paid/deducted for your income.

For example – If you have:

  • Been working overseas in Japan for 5 months 
  • Earned $20,000 after tax 
  • Paid $4,000 in tax already to Japan (which you can claim as FITO)

The target foreign income tax to report would be $24,000 and not $20,000

What is FITO And Can You Claim It?

You might be thinking, can I claim FITO? And what even is it? Foreign Income Tax Offset, otherwise known as FITO, is a scheme where an Australia tax resident can offset some relief of double taxation.

If you have paid tax to a foreign country, you may be able to claim that as a tax offset when reporting your foreign employment income. This will reduce  the tax payable on your foreign income. To be eligible you must:

  • Have paid, or be deemed to have paid, foreign income tax in a foreign country
  • The tax that you paid must be included and yielded from your assessable income 

You Get Paid In a Different Currency – How Do You Convert It?

Following on from the Japanese example we have discussed above, what do you do if you are getting paid in Japanese Yen but you have to report your income to Australia? Well, you have to convert the Japanese Yen into Australian dollars – using the ATO’s exchange rates published on their website.

So, let’s look at the following: 

  • You get paid 1,975,860.00 Japanese Yen before tax 
  • 1 Australian dollar is worth 82.3 Japanese Yen at the ATO end of financial year exchange rate 
  • Based on how much you earn, and the ATO exchange rate, you would have to report $24,000 AUD to the ATO for your foreign employment income 

How do I Include My Foreign Income On My Tax Return?

If you want a quick, easy, sure-fire way to make sure you claim all your expenses in your tax return, then look no further than One Click Life.

Our system automatically pulls data from the ATO, pre-filling your Australian Tax Return details. We’ll just need you to provide us the foreign income statements for the current financial year that shows the total income that you have received. (including tax)

Simply contact us and make an appointment