Follow the links below for more information about:
- Listed countries
- Australian-owned subsidiaries incorporated in another country
- Reporting income from international transactions
- Non-assessable non-exempt business income
- International dealings schedule
- Limits to debt deductions under thin capitalisation rules
A 'listed' country is a country listed in Part 1 of Schedule 10 to the Income Tax Regulations 1936 (ITR 1936). Listed countries are:
- New Zealand
- United Kingdom
- United States of America.
Generally, a subsidiary incorporated overseas will be treated as a foreign resident under Australian tax law.
If the overseas subsidiary does not satisfy the 'active income test', the Australian owner may be taxable in Australia under Australia's controlled foreign company (CFC) rules on certain kinds of income earned by the subsidiary, such as dividends and interest. If the overseas subsidiary is resident in one of the listed countries, such as the United Kingdom, the Australian owner is taxable on fewer kinds of income than for countries that are not listed, such as Singapore.
Reporting income from international transactions
If you have assessable income from overseas, you must declare it 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 exempt from Australian tax because we may take it into account to work out the amount of tax you are liable to pay on both your Australian and foreign income.
Before you calculate your income and deductions, you must convert all your foreign income, foreign deductions and foreign tax paid into Australian dollars.
If you are an Australian-resident company, certain types of foreign business income you receive are not subject to Australian tax. They include:
- foreign income and gains in carrying on business at or through an overseas permanent establishment, unless the 'active income test' is not satisfied and the income or gains are certain kinds of income, such as dividends or interest. If the overseas permanent establishment is in one of the listed countries, fewer kinds of income are not exempt if the 'active income test' is not satisfied than for countries that are not listed
- equity distributions from a foreign company made after 16 October 2014 if you had a minimum 10% participation interest in the company
- dividends from a foreign company paid before 17 October 2014 if you had at least a 10% voting interest in the company.
When lodging a company, superannuation, trust or partnership return, you must complete an international dealings schedule and include it with your tax return if you have:
- transactions or dealings with international related parties greater than $2 million (including the value of property transferred or the balance outstanding on any loans), or
- completed certain labels on your company, trust or partnership return, such as the interest expenses overseas label – the instructions to the tax return will tell you when you need to complete the schedule.
For income years starting from 1 July 2014, if you have claimed interest or other debt deductions in Australia totalling more than $2 million in the income year, special rules may limit your debt deductions if you:
- operate an Australian entity with overseas investments
- are an Australian entity with overseas branch operations or control an overseas company, or
- are a foreign controlled Australian entity.
For earlier income years, the special rules may apply if you have debt deductions totalling more than $250,000 in the income year.
See also:As an Australian resident, you are taxed on your worldwide income. This means you must report all income you receive from foreign business activities on your Australian tax return. The tax treatment of your income depends on a number of factors, such as whether your activities are carried out in a listed country such as the United Kingdom.