Declaring Your Foreign Income

If you are an Australian resident for tax purposes, you will be taxed on all your income including your foreign income. When filing your tax returns, you must therefore declare all your foreign income which can include any of the following:-

  • Foreign investment income
  • Foreign annuities and pensions
  • Foreign employment income
  • Capital gains from your foreign assets
  • Foreign business income

The ATO Data Collection Machine

It is no longer easier to hide or rort on your foreign income because the ATO currently has a robust data gathering machine thanks to the Common Reporting Standard (CRS), a global standard for the collection, reporting and exchange of financial information for foreign tax residents.

Thanks to CRS, the Australian Taxation Office is able to receive financial account information for Aussies residing in various foreign tax authorities. The Australian government has implemented exchange agreements with 51 such foreign tax jurisdictions, enabling it to access the financial account information from some of the top countries where Australians are likely to be residing in. An Australian resident receiving an income from a foreign tax jurisdiction must report that income to the local tax authority so as to avoid penalties.

Penalties for False Statements

The ATO imposes a penalty ranging from 25% to 75% of the underpaid tax if you make any false or misleading statements about your foreign income. The severity of this penalty depends on the seriousness of the non-disclosure of your foreign income.

There is generally little wiggle room for under-reporting your foreign income. Apart from the information collected and reported thanks to the CRS, the Australian banks, insurance companies and investment companies are also required to report your financial activity to the ATO. Then there is the information that government obtains through AUSTRAC (Australian Transaction Reports and Analysis Centre). The ATO casts its net as wide as possible to ensure that the financial accounts of tax residents are reported.

Will you face double taxation?

Since your income may also be taxed in the source country, an Australian tax resident may potentially be subject to double taxation. To avoid this, the Australian Taxation Office uses a system of credits and exemptions to ensure your taxable income is only taxed at your marginal tax rate even if you are paying taxes in two or more jurisdictions.

If you are an Australian non-resident for tax purposes, you will only be taxed on the income that is sourced from Australia so there will be no need for you to declare your foreign income when filing your Australian tax returns.

As an Australian resident for tax purposes, it is imperative that the foreign income data that you provide the ATO with be correct and up to date in order to avoid any penalties. The ATO has a powerful data matching tool thanks to the CRS so all the foreign income declared must be accurate to ward off an ATO audit and stiff penalties for non-compliance.

Need help in declaring your foreign income in Australian tax returns? An accountant Melbourne professional can provide you with international tax consulting services, ensuring you are on the safe side of ATO rules.

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