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.
Your tax obligations will depend on if your business transaction is with a country that has a tax treaty with Australia. Australia has treaties with over 40 countries.
Operating a business through permanent establishments in another country
A permanent establishment is a fixed place of business. It includes any of the following:
- a sales outlet
- a branch
- a place of management
- a factory
- a workshop
- an office
- a dependent agent who has authority to enter into contracts on behalf of the enterprise and does so regularly.
Generally, having a website that is hosted by an independent internet service provider in another country is not regarded as having a permanent establishment in that country.
- To work out if you have a permanent establishment, refer to Taxation Ruling TR 2002/5.
Australian-owned subsidiaries incorporated in another country
Different arrangements may apply to Australian-owned subsidiaries incorporated in another country.
Generally, a subsidiary incorporated overseas:
- will be taxed as a foreign resident under Australian tax law
- is not considered to be a permanent establishment of its Australian parent company.
If you have 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 income you receive that is exempt from Australian tax. This is because it may impact 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 might be non-assessable non-exempt income which means it is not subject to Australian tax . They include:
- foreign profits and gains in carrying on business at or through a permanent establishment
- dividend income you receive from a non-portfolio investment if you have at least a 10% voting interest in the payer company.
When lodging a return you must complete an international dealings schedule and include it with your tax return if you have either of the following:
- international dealings with a related party, if the combined amount of your transactions or dealings, whether on capital or revenue account, is more than $2 million, including the value of property and services transferred or the balance outstanding on any loans – if so, complete section A of the International dealings schedule
- an overseas branch or a direct or indirect interest in a foreign trust, foreign company, controlled foreign entity or transferor trust – if so, complete section C of the International dealings schedule.
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.
- International dealings schedule 2016
- International transfer pricing – introduction to concepts and risk assessment.
If you are an Australian resident your capital gains on overseas assets are treated in the same way as on Australian property. If you make a capital gain that is taxable in Australia and you have paid foreign tax on it, you may be entitled to a foreign income tax offset.
If you operate an Australian company, certain capital gains and capital losses you make on the disposal of your shares in foreign companies with underlying active businesses are disregarded or reduced.
- See if you are entitled to an Australian foreign income tax offset.
If you operate a thinly capitalised or highly geared entity – that is, your assets are funded by a high level of debt and relatively little equity – special rules apply that limit your debt deductions if you operate either of the following:
- an Australian entity with overseas investments
- a foreign entity with investments in Australia.
GST is a 10% consumption tax on most goods, services and other things sold in, and connected with, Australia.
How do I know if a supply of goods or services is connected to Australia?
A supply of goods is connected with Australia if any of the following applies:
- the goods are delivered or made available in Australia to the purchaser
- the goods are removed from Australia
- the goods are brought to Australia, provided the supplier either
- imports the goods into Australia
- installs or assembles the goods in Australia.
- land and buildings
- rights over land.
A supply of real property is connected with Australia if the property is in Australia. For GST purposes, real property includes
- land and buildings
- rights over land.
A supply of something other than goods or real property is connected with Australia if either of the following applies:
- the thing is done in Australia
- the supplier makes the supply through an enterprise – that is, a permanent establishment – that the supplier carries on in Australia.
Usually, a service is supplied in whichever location it is performed. If the service is performed in Australia, the supply of that service is connected with Australia.
How does GST apply to exports?
Exports are generally GST-free. These include:
- goods physically exported from Australia
- services supplied to a non-resident outside Australia.
See also:Outlines your tax obligations in Australia if you are an Australian resident doing business overseas.