If you are living and working in Australia it is quite likely that you will be deemed as an Australian resident for tax purposes, which is not to be confused with an Australian resident for immigration purposes. Due to this, you are taxed on the whole of your worldwide income and this must be declared on your annual tax return. If you are also required to submit a tax return in the country that the income is generated, it does not always mean that you will have to pay tax in both countries.
You could end up paying double taxation but treaties with numerous countries means that in many cases, the tax you have paid in the source country will also need to be declared so that it can be claimed as a Foreign Income Tax Offset. It is a little more complicated where different tax rates are taken into account but as the point of this blog post is not to go into every detail, it is advisable to get advice from your tax advisor on the matter.
Some sources of foreign income include:
- Bank Account Interest
- Asset & Investment return income
- Dividends received
- Income from employment or personal services, including director’s fees
- Royalty or licensing payments
- Rental Income
- Superannuation or pension income
- Capital Gains on assets
Increasingly, the ATO is able to obtain information on taxpayer’s foreign sources of income and so it is increasingly unlikely that you will be able to get away with non-declaration of such income. It is much better to self-declare and pay the appropriate tax than be found out at a later date and have to pay penalties and interest on top.
In a country like Australia, with a large migrant contingent having settled in the country, the management of foreign sources of income is especially important and seems to be a focus point for the ATO going forward.
However, for those of you that are not registered as resident for tax purposes, you only have to declare the income you have generated in Australia and pay tax on that accordingly, although it is worth noting that your home country’s tax authorities may require you to declare the income and account for it accordingly.