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Many Australians see tax returns as a complex procedure because of a lack of awareness of tax laws. It becomes even more complex for Australian expats living abroad, or Australians having overseas income resources. The incomes of both come under the ambit of international tax.
However, this is not something to be stressed about. By adequately preparing beforehand and seeking the guidance of a tax professional, your international tax return job will be made easier and more streamlined.
Your first step should be to take all your income sources into account before paying international tax in Australia. After that, take factors like your residency status in Australia and overseas into consideration. Then, see if the double tax consideration (DTA) applies to you or not. These factors will help you ensure that -
- You don’t pay more tax than you are eligible to pay
- Your return is accurate and you don’t infringe any tax rule
- Your return is compliant with the Australian Tax Office guidelines and you avoid getting blacklisted.
If you lack information related to tax rules, or, if you are getting confused about clauses in the return application form, it is advisable to seek expert assistance.
In the write-up below, we are sharing some valuable tips which can come in handy when you file your international tax return.
Are international tax rules the same for all?
There are a number of international tax rules. It is necessary to know in which category you fall. Australian residents having overseas income must declare their worldwide income (income they earn in Australia and overseas) and pay tax on it. Australians living overseas need to declare the income they earn from Australian sources. People who come under the VET Student Loan, Higher Education Loan Program, or Trade Support Loan debt, must also declare their worldwide income.
Since residents are bound to declare their foreign income, they can be subject to double taxation (in the income source country also). To overcome this problem, Australia has signed tax treaties with 40 countries, including all of the country’s major investment and trade partners.
To ensure that Australians having financial accounts in other countries comply with the national tax laws, Australia exchanges and receives financial account information with foreign tax authorities.
What is the Australian tax return date?
If you are a non-resident, don’t get confused with tax return dates of the two countries. Most countries have their financial calendar year from January 1-December 31, but the Australian financial calendar year runs from 1 July to 30 June.
Since you have to conform to the Australian tax date, the deadline to remember is 31 October. Australians who self-lodge their tax return must lodge it by this date, to ensure they avoid a fine. If you miss this deadline, you can apply to the Australian Taxation Office (ATO) for an extension of the date, which they can extend for a maximum of one to two months.
If you have opted for Expat Taxes (or another registered tax agent) before the lodgment of your tax return date of 31 October, your lodgment date will be automatically extended to 31 May. However, this assumes that your last-year return was filed on time.
Will all my assets be taxed?
As mentioned earlier, residents need to declare the income they earn in Australia and overseas. But, their entire income won’t be taxed. They will get an exemption under the domestic tax law, plus they can also get an exemption under double treaties.
For a non-resident seeking capital gains on tax, only the sale/disposal of those assets will be taxed which are considered “Taxable Australian Property”.
One of the more complex laws for non-residents, is if they owned assets/property before becoming a non-resident and chose not to include a deemed loss or capital gain, any subsequent sale of those assets is most likely to be taxed.
Is knowing my residency status important to me?
Knowing your residency status is important as it will determine the tax you pay. Just moving outside Australia does not mean that you have become a non-resident. It is quite possible that you will remain a resident despite staying overseas.
In addition, even if your overseas stay is longer than 183 days, it is just one of the four residency tests to be a non-resident.
If you have settled overseas permanently, which means for a minimum period of two years or more and satisfy a few other factors, you will be considered a non-resident. Otherwise, you remain a resident subject to taxation on your worldwide earnings.
What if I am a non-resident?
As mentioned earlier, a non-resident needs to pay tax on their income only from Australian sources. These sources may be in the form of rental income from an Australian property, earned interest, consulting income, royalties, dividends, etc.
Knowing your residency status is important as there have been cases when people thought themselves to be non-residents as they were staying overseas for years, but they were declared residents by the ATO or courts. Since they passed themselves for non-residents, they were imposed heavy penalties by the ATO.
What if I have returned to Australia from overseas?
If you have returned permanently in the last financial year, your residency status will also change to that of a resident. You will not be considered a non-resident, and hence, you have to pay tax on your worldwide income too. If you are getting foreign pension funds, or holding foreign currency denominated bank accounts, you need to pay tax on them as well.
How can I benefit from a double tax treaty?
Many residents don’t have clarity over double tax treaties. Some of them think their employment income is not taxable in Australia, others think Australia can tax their income.
To bring clarity to what a double treaty means, if you are a resident, you will not be double taxed when Australia and the country of your income source have claiming rights over your income.
One thing that should be noted is that all double tax treaties are not identical. These are forged after negotiations with individual countries, and the tax rate may vary in different countries.
What if I am an overseas student?
If you have pursued higher education in Australia, you will have a Higher Education Contribution Scheme (HECS) debt, which is known as HELP now. In such a case, you have to lodge an overseas travel notification with the ATO within seven days of moving overseas.
After that, if your worldwide income exceeds AU$12,090, you need to declare that income to the ATO. Declaration is necessary not because you have to pay tax on that income, but for knowing whether you need to make a compulsory HECS/HELP debt repayment. The debt repayment becomes compulsory if your repayment threshold exceeds AU$47,014. The debt repayment rate in that case will be up to 10%.
Conclusion
International tax is a complex subject, with many different facets and scenarios to consider. You need to do your own proper due diligence or seek guidance from a professional before dealing with international tax, or else, you may end up paying heavy taxes and penalties.
