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Do you have any amounts of offshore income you haven’t declared to the ATO – perhaps interest from a foreign bank account? International data-sharing arrangements are making your overseas financial affairs increasingly transparent, so don’t get caught out. Failing to report foreign income can attract penalties and ATO scrutiny of your broader tax affairs.
If you’re an Australian resident for tax purposes, you’re taxed on your worldwide income, so you must declare all foreign income sources in your return. You should consider whether you’ve earned any amounts from overseas investments, pensions, employment or the sale of offshore assets.
You still need to declare overseas income to the ATO even if you’ve already paid foreign tax on it. You may be entitled to an offset for foreign tax already paid. Your tax adviser can help you with this, as well as applying the rules for converting amounts to Australian dollars.
You’re only taxed on your foreign income if you’re an Australian resident for tax purposes. If you’re a non-resident, you generally only pay tax on your Australian-sourced income.
Being an Australian resident for tax purposes is different to immigration concepts of residency, and your nationality is generally not relevant. So even if you aren’t an Australian citizen or permanent resident, you could be a resident for tax purposes.
The main test for tax residency is whether you “reside” in Australia. There’s no single factor that determines whether you meet this test.
Instead, it requires a weighing up of all relevant circumstances, including things like your intentions, your family and living arrangements, business and employment ties, and so on.
However, even if you don’t currently “reside” in Australia for tax purposes, you may still be a resident for tax purposes under several alternative tests (including where both your “domicile” and permanent place of abode are maintained in Australia). Seek professional advice if you’re in any doubt about your tax residency status.
If you think you may have omitted some foreign income from a previous tax return, you can make a voluntary disclosure to the ATO and pay any tax you owe. You’ll often receive a reduction in ATO penalties and interest that would otherwise apply, especially if you make the disclosure before the ATO audits you.
Contact our office if you have any questions about tax residency, foreign income or making a voluntary disclosure. We’ll help you navigate the rules to ensure your offshore financial affairs are sorted.