Overseas investments and tax

Are you an Australian who is investing, or has investments, overseas? Perhaps you purchased an apartment in Paris that you are renting out, or you are earning interest on an investment you made in Hong Kong, but you still live in Australia. Australian residents for tax purposes are taxed on the income they earn worldwide, and it is necessary for them to declare all foreign income in their tax return. Determine if you are a resident for tax purposes.

If you've paid tax in another country on your investments, there may be provision for an Australian foreign income tax offsets/credits – which provides relief from the pain of double taxation.

Even if there is foreign income that is exempt from Australian tax, you must declare it – this is because your foreign income could be needed to help calculate the amount of tax you owe on your assessable net income from Australian and foreign sources.

"Currency rates change all the time – so how do I report my foreign income in Australian dollars?"

That's a good question; it's important to convert all your foreign income, deductions and foreign tax paid, into Australian dollars before you calculate your net income. Check out Converting foreign income to Australian dollars here.

"I own shares in a foreign business. Are the rules the same for individual and business investments?"

The income earned from passive investments like rental properties, securities, interest and royalties is different to any income you might earn from business activities overseas. See 'Doing business overseas' for more information, however you may find the information in this article helpful also.

If you received an income from overseas other than a salary, pension or annuity, from July 1, 2008 your foreign income will be calculated on a 'whole of income' basis. Before July 1, 2008, any income from overseas that is other than a salary, pension or annuity would be dealt with separately, and categorised according to type, as opposed to looking at the whole of the income for tax purposes.

If you disposed of your overseas asset, you may have made a capital gain. If this is the case, you may need to declare it in an Australian tax return, and pay capital gains tax.

There are particular rules limiting debt deductions that apply to foreign controlled investments in Australia and to Australian taxpayers who control investments overseas. These rules apply where an entity whose assets are funded by a high level of debt and little equity exists.

To find out more about owning property overseas, see 'Owning property overseas'

Last reviewed 9/08/2012