As an Australian resident, you are taxed on your worldwide income. This means you must declare all your foreign income on your Australian tax return.
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.
You must report any foreign employment income you receive that is not subject to Australian tax, as it may be taken into account when working out the amount of tax you are liable to pay on your foreign income.
Table 1: Foreign investments checklist
Status
|
Action
|
Have you received income from overseas other than a salary, pension or annuity?
|
Before 1 July 2008, your foreign income was categorised on a class-of-income basis for tax purposes.
From 1 July 2008, foreign income is calculated on a whole-of-income basis.
|
Do you have interests in a foreign entity or dealings with a related party?
|
Income may be attributed to you even if it hasn't been distributed. You may also have special reporting obligations.
|
Have you made a capital gain on the disposal of an overseas asset?
|
You may need to declare it on an Australian tax return and pay capital gains tax.
|
Before you calculate your income and deductions, you must convert all your foreign income, foreign deductions and foreign tax paid into Australian dollars.
If, as an Australian resident, you have interests in a foreign entity, your share of its income can be attributed to you for income tax purposes, even if the income has not yet been distributed.
If foreign income has been attributed to you, you may be entitled to a foreign income tax offset for the foreign income tax (including withholding tax) paid by either of the following:
- the controlled foreign company (CFC) in which you hold an interest
- the foreign investment fund (FIF) in which you previously held an interest.
For the 2010-11 income year and future years, the FIF rules have been repealed. You no longer need to attribute FIF income.
The rules for attributed foreign income have been simplified - refer to Attributed foreign income in Guide to foreign income tax offset rules. For example, you no longer need to maintain attributed tax accounts to claim a foreign income tax offset for income that had been attributed to you.
When lodging a company, superannuation, trust or partnership return for the 2011-12 income year or later income years, you must complete section C of the International dealings schedule (NAT 73345) if you have an interest in foreign entities.
Special rules apply to some international dealings between related parties that are not priced at arm's length.
When lodging a company, superannuation, trust or partnership return for the 2011-12 income year or later income years, you must complete section A of the International dealings schedule (NAT 73345) if the total amount of your international related-party dealings, including the value of any property/services transferred or the balance of any loans, was more than $2 million.
If you are lodging your tax return for the 2010-11 income year or an earlier income year, you must complete section B of Schedule 25A if you had a direct or indirect interest in a foreign trust, foreign company, controlled foreign entity or transferor trust.
Non-assessable non-exempt investment income
Certain types of foreign investment income are not subject to Australian tax.
These include:
- non-portfolio dividends you receive as an Australian-resident company from a foreign company if you have at least a 10% voting interest in the payer company
- dividends you receive as an Australian resident, sourced from profits that have been previously attributed to you - refer to Attributed foreign income.
As an Australian resident, you are generally taxed on any capital gains you make on an overseas asset and must report the gain on your tax return.
If the gain is taxable in Australia and you have paid foreign tax on it, you may be entitled to a foreign income tax offset.
|
For more information, refer to:
|
Debt deduction limits - thin capitalisation
Special rules limiting debt deductions apply to foreign-controlled investments in Australia and to you if you control investments overseas. These special rules apply if a thinly-capitalised (or highly-geared) entity is involved. A thinly-capitalised entity is an entity whose assets are funded by a high level of debt and relatively little equity.
The government is continually reviewing international tax arrangements. For more information about how potential legislative changes may affect you, refer to New legislation.
If you need help in applying this information to your own situation, phone us.
Last Modified: Thursday, 9 August 2012