What are your tax obligations?
Understanding foreign income and your tax obligations as an Australian resident is paramount to ensuring that you do not face hefty penalties come tax time. If you’re an Australian Resident Taxpayer earning income from overseas, you’ll want to listen up. And in the wise words of Alanis Morissette, there’s one big thing you oughta know.
Essentially, your global income MUST be reported as part of your annual tax obligations. While earning money from overseas as an Australian resident is completely above board, there are a few factors to keep in mind. And we’re here to lay them out on the table for you. Who Needs To Declare Foreign Income? This information is particularly crucial for Australian residents who: ● Have inherited or are lending money from a relative overseas*
● Have assets, such as a house, in another country
● Earn an income from an overseas contract or employer *We have a horror story or two about this one. A Mother, who was living in New Zealand, loaned money to her Australian-based daughter to buy a house with loan agreements drawn up, the whole lot. But because the Fund came from a NZ Trust rather than her own name, you guessed it, the ATO have claimed it should have been part of her tax return and assessed What Needs To Be Declared as Foreign Income?
If you are an Australian resident for tax purposes, all foreign income is required to be reported as part of your tax return. This income includes: ● Rent paid to you for overseas properties
● Interest on overseas bank accounts
● Foreign pensions
● Foreign business income
● Wages earned from an overseas employer
● Money inherited or loaned from a family member overseas – You saw above how not to do it… So, speak to us before you do and make sure it's transferred correctly
Why Do You Need To Declare Foreign Income?
While your intentions may be harmless, the ATO is knuckling down on foreign income and does, in fact, receive this foreign income information from third parties such as banks, AUSTRAC and other overseas tax authorities. So if your reported income does not match their records, chances are, you’ll be contacted.
What Are The Penalties For Not Declaring Foreign Income?
Penalties for not claiming foreign income as an Australian resident are pretty substantial, so it’s important that you know the cold hard facts. We mean, why not declare foreign income correctly and keep your pennies in your pocket instead of handing them over to the ATO? Depending on your interactions with the ATO, the financial penalties for not declaring your foreign income as an Australian resident can range from 25% to 150% of the undeclared tax, it will include a Penalty also and on top of this 9% interest on unpaid tax which hasn’t been paid.
More Information About Foreign Income
In some instances, you may be taxed for foreign income in Australia and also from the country you received the income. In this case, you may be eligible to an Australian foreign income tax offset, which you can read more about on the ATO website. Exempt income, such as foreign income earned as a member of the Australian Defence Force or Police Force and overseas aid work must still be reported, despite these types of foreign income having special circumstances applied.
Still have questions about claiming foreign income as an Australian resident? Give us a call