Have You Got Undisclosed Foreign Income?
Undisclosed Foreign Income Puts You At Risk Of Being Audited
Do you have any amounts of offshore income you haven’t declared to the ATO – perhaps interest from a foreign bank account?
Even if it seems like a small amount, you must declare it. International data-sharing arrangements are making your overseas financial affairs increasingly transparent, so don’t get caught out.
The ATO is reminding taxpayers about their obligation to report foreign income, and it’s emphasised that its techniques for detecting offshore income are becoming increasingly effective. Cross-border cooperation between different tax jurisdictions means your financial information is being shared more than ever before. This increases the odds of your affairs being uncovered by the ATO and subject to audit.
Failing to report foreign income can attract severe penalties and ATO scrutiny of your broader tax affairs.
Got any amounts you’ve overlooked? Now is a great time to get help with making a voluntary disclosure.
Find out how foreign income is taxed and what you need to do.
How Is Foreign Income Taxed?
If you’re an Australian resident for tax purposes, you’re taxed on your worldwide income, so you must declare all foreign source income in your tax return.
You should consider whether you’ve earned any amounts from:
- investments held overseas
- interest from offshore bank deposits
- overseas pensions
- overseas employment income such as salary and directors’ fees
- capital gains on the sale of offshore assets
What If You’ve Already Paid Foreign Tax On Your Overseas Income?
Even if you’ve already paid foreign tax on your overseas income, you still need to declare that foreign income to the ATO.
All foreign income amounts must be converted to Australian dollars according to foreign currency conversion rules that use specific exchange rates or an average exchange rate.
You might also need to apportion amounts that were earned in countries that don’t have an income year ending 30 June.
You may be eligible for an offset against your Australian tax for the foreign tax you’ve already paid, subject to certain limits.
Are You A Tax “Resident” Of Australia?
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 Australian 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 still be a resident of Australia 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 other factors.
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).
For further information on Australian tax residency read our post “Are you an Australian Tax Resident?”.
Determining tax residency is a complex area and you should seek professional advice if you’re in any doubt about your tax residency status.
Making A Voluntary Disclosure
If you think you’ve 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 generally receive a reduction of up to 80% of the penalties and interest that would otherwise apply if you make disclosure before the ATO commences an audit of your tax affairs.
Given the ATO’s increased powers to detect offshore amounts, taxpayers with unreported income should think seriously about the benefits of making a voluntary disclosure.
Unsure About Your Foreign Income?
Contact our office if you have any questions about your tax residency status, foreign income or making a voluntary disclosure. We’ll help you navigate the complex rules to make sure your offshore financial affairs are sorted.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.