“I didn’t know I needed to declare it.”
This simple phrase has cost Australians millions in penalties, not to mention the sleepless nights, when dealing with foreign income tax. That rental property in Bali, those dividends from US stocks, or the salary from your remote international employer—all of them have tax implications back home that can’t be ignored.
As we plunge deeper into the 2020s, foreign income tax is affecting more Australians than ever before. With investment apps making international markets accessible from your phone, remote work opportunities spanning the globe, and inheritance assets crossing borders, understanding your tax obligations has never been more critical.
What exactly counts as foreign income? Essentially, it’s any money flowing to you from outside Australia. This could include:
- Annuities and lump sum payments from managed funds
- Wages and salaries from overseas employers
- Rental income from properties abroad
- Royalties from intellectual property
- Profits from overseas businesses
- Foreign government pensions
- Foreign pensions and annuities
- Interest from foreign bank accounts
- Dividends from international shares
- Cryptocurrency earnings from foreign exchanges
- Capital gains from selling assets located outside Australia
The Australian Taxation Office (ATO) considers all worldwide income when assessing your tax obligations. And their data matching capabilities are growing stronger every year. If you’re caught failing to declare foreign income, you won’t just be asked to pay the tax you owe—it can trigger substantial penalties and interest charges. Depending on the circumstances, the ATO may also pursue prosecution for tax evasion or avoidance. In short, it really won’t be your year.
When Ignorance Isn’t Bliss: The Reality of Foreign Income and Taxes
This comprehensive guide covers everything you need to know about handling foreign income as an Australian taxpayer. We’ll explore income from various assets and investments, what happens when you own overseas assets, how to avoid double taxation, currency conversion requirements, and special exemptions.
We’ve also included digital nomad considerations and superannuation strategies for Australians working overseas. Whether you’re an expat, investor, remote worker, or simply planning for international opportunities, this guide will help you meet your obligations while minimising unnecessary tax burdens.
What Happens If I Own An Overseas Asset?
The ATO takes a keen interest in your global property portfolio, whether it’s a luxury villa in Tuscany or three shares in a struggling Estonian tech startup.
As an Australian tax resident (note: this isn’t necessarily the same as citizenship), any capital gain you make from selling overseas assets is taxable in Australia. However, the timing of your asset acquisition matters significantly:
If you bought the asset before becoming an Australian tax resident
The ATO doesn’t care what you paid for it originally. Instead, they use the asset’s market value on the date you became an Australian tax resident as your “cost base.” This can work in your favour or against you, depending on whether the asset increased or decreased in value before you became a resident.
If you stop being an Australian tax resident while still owning overseas assets
The ATO treats this as if you sold all your assets on your last day as a resident—even though you still own them. This “deemed disposal” triggers a capital gains tax event, meaning you might owe tax on assets you haven’t actually sold. There are provisions to defer this tax liability, but they require specific elections and paperwork.
We recommend speaking with an accountant if you’re about to be in this position. Having an expert on your side can greatly improve your overall outcome while ensuring you don’t make any costly mistakes.
If you were an Australian tax resident the entire time
Standard capital gains tax rules apply, just as they would for Australian assets. The 50% CGT discount may still apply if you held the asset for more than 12 months.
The ATO’s ability to track overseas asset sales has improved dramatically with international information-sharing agreements. The days when a property sale in Peru might fly under the radar are long gone. Tax authorities talk to each other more than most people think.
Pro Tax Tip: Keep meticulous records of purchase prices, acquisition dates, improvement costs, and selling prices—converted to Australian dollars at the relevant exchange rates. The ATO rarely accepts “I think it was around that much” as a valid cost base calculation.
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Tax On Foreign Income In Australia: Can I Be Double Taxed?
This is the part everyone gets stressed about, but you can rest easy. Any foreign income could incur double taxation if tax is withheld in the source country. However, to overcome this issue, the Australian government has treaties with over 40 countries, including all major trade and investment partners.
Some countries operate on a different financial year than Australia, which does complicate things a bit. Australia operates on a fiscal year, which is 1 July through to 30 June, while others (like the US) operate using a calendar year from 1 January through to 31 December. This means that foreign income amounts may need to be reported across multiple Australian tax years.
Pro Tax Tip: You should determine which Australian tax years the amounts should be reported and apportion. Your tax agent will be able to help you work this out.
Generally speaking, you won’t have to pay tax twice if you’ve already paid overseas tax in the country from which you derived the income. Instead, you may be entitled to a foreign income tax offset. In order to be eligible, you’ll need to already have paid tax on the overseas income and have your records to prove it.
The offset amount will depend on the amount of tax you’ve paid. If you claim more than $1,000, you’ll need to complete a foreign income tax offset limit calculation. Learn more about the specifics of the foreign income tax offset in our comprehensive guide.
Calculating Foreign Income Tax: Conversions
In order to correctly calculate the proper amount, all foreign income must be converted into Australian dollars. This can be the specific exchange rate on the day, or an average exchange rate. Rates are set by the Reserve Bank of Australia.
Daily exchange rates are updated at the beginning of the following month. If the ATO has not published an exchange rate, you can use an appropriate rate provided by a banking institution operating in Australia or another reliable external source.
Tax Deduction Vs Tax Write Off: What’s Best for Small Businesses?
Calculating Foreign Income Tax: Exemptions
Not all foreign income is taxable in Australia. You might qualify for a complete exemption if you meet all of these conditions:
- You are an Australian tax resident (not simply a citizen)
- You’ve been continuously employed overseas for at least 91 days
- Your foreign employment falls into one of these specific categories:
- You’re working on Australian official development assistance projects
- You’re operating a public fund approved by the Minister for foreign aid to developing countries
- You’re managing a public fund providing disaster relief to people in developed foreign countries
- You’re employed by a charitable or religious organisation that’s exempt from Australian tax due to its overseas location or activities
- You’re on an official foreign deployment (typically military or diplomatic service)
If you don’t meet all these criteria, your foreign income will generally be taxable in Australia, though (as described above) you may still qualify for foreign income tax offsets to prevent double taxation.
Digital Nomad Foreign Income Tax Considerations
Remote work has firmly established digital nomadism as a viable lifestyle choice for many Australians. The thing is, whether you’re working from a beach in Bali or a co-working hub in Norway, the ATO still wants its share of your income. Australian tax residents must declare worldwide income, regardless of where they park their ergonomic chair.
Many countries now offer specific digital nomad visas designed to attract remote workers. These often include tax incentives or simplified visa processes for those who can demonstrate stable remote income. Countries like Portugal, Croatia, and Thailand have become popular destinations for Australian digital nomads. However, these local tax advantages don’t necessarily translate to Australian tax relief—Australian tax residents generally must still declare this income.
Are digital nomads still Australian tax residents?
The current tax residency rules apply to digital nomads just like anyone else. The ATO considers various factors when determining your tax residency status, including:
- Your physical presence in Australia (the 183-day test is one consideration)
- The location of your permanent home
- Your social and economic ties to Australia
- The purpose and duration of your overseas stays
Digital nomads sometimes fall into a tax trap by assuming that simply being outside Australia exempts them from Australian tax obligations. This misconception can lead to significant tax liabilities when the ATO determines they remained Australian tax residents throughout their travels.
The ATO has substantially improved its ability to detect undeclared foreign income through international data-sharing agreements and partnerships with financial platforms. Payment services like PayPal, Wise, and Stripe may be required by law to provide data that helps tax authorities identify income sources that cross borders.
How to avoid tax troubles as a digital nomad
Before embarking on extended travel as a remote worker, consult with a tax professional who specialises in international taxation. This is the best way to prevent costly mistakes. They’ll help you:
- Document your intentions regarding residency
- Understand the tax treaties between Australia and your destination countries
- Structure your affairs to minimise compliance burdens while meeting all obligations
- Set aside appropriate funds for potential tax liabilities
Pro tax tip: The tax implications of working remotely from overseas are complicated, and they will always depend on your specific circumstances. What works for one digital nomad might create tax problems for another. So never base your decisions on things other nomads an expats confidently tell you in the Bia Hois, beach clubs, and co-working spaces of the world.
Superannuation Considerations for Overseas Australians
Australians working abroad face important decisions about their superannuation arrangements that can significantly impact their retirement savings.
If you’re temporarily working overseas, you may continue making voluntary contributions to your Australian superannuation fund. However, these contributions are subject to the same caps and rules as if you were working in Australia. Before making contributions while overseas, check with your super fund about their policies regarding overseas members.
Self-managed super funds (SMSFs) require particular attention when members move overseas. An SMSF risks becoming non-compliant if central management and control are established outside Australia for more than two years. The practical consequence? Tax on the fund’s assets at 45%, which would severely impact your retirement savings.
The ATO provides a temporary absence provision that allows SMSF trustees to maintain Australian tax residency of their fund while temporarily overseas. This typically covers absences of up to two years, though extensions may be available in certain circumstances.
Transfering overseas retirement funds and pensions into your super
When considering whether to transfer foreign pension or retirement funds to your Australian superannuation account, be aware that these transfers count toward your non-concessional contribution caps. Foreign pension transfers may also be subject to additional rules and limitations depending on the source country and whether it has a formal agreement with Australia regarding pension transfers.
Some countries have entered into formal agreements with Australia that allow for the portability of retirement benefits. These agreements can affect how your retirement savings are taxed and whether they can be transferred between systems without penalty.
For Australians planning extended work periods overseas, it may be worth investigating whether your employer can continue contributing to your Australian super fund or whether you should participate in the local retirement system of your host country. Some double taxation agreements include provisions specifically addressing retirement savings.
Do Foreign Residents Pay Tax on Overseas Income?
You need to declare any Australian-sourced income in your Australian tax return. This may include employment income, rental income, Australian pensions and annuities (unless you’re exempt), and any capital gains on Australian assets.
You don’t need to declare income you earn from outside Australia in your Australian tax return. You also do not have to declare Australian-sourced interest, dividends or royalties you derive while you’re a foreign resident, provided you have already had tax withheld. This might not automatically occur, so you’ll need to let your Australian financial institution or company know.
You shouldn’t have to pay the Medicare Levy since you don’t receive Medicare health benefits. If you become a resident for tax purposes, you can claim an exemption from paying the Medicare levy for the number of days in the income year that you were still a foreign resident.
Pro tax tip: As a foreign resident, you can’t claim the tax-free threshold and will need to pay tax on every dollar of income you earn in Australia.
Always Assume The ATO Can See What You’re Earning
The ATO receives information electronically from third-parties, including banks and tax authorities overseas. They can monitor people’s income through AUSTRAC and match this information with tax declarations and tax returns. If what you report doesn’t line up with the data received, the ATO may flag your tax return.
Pro Tax Tip: Penalties will apply if you don’t declare foreign income. These are often between 25% and 95% of the tax avoided, plus over 7% interest on the unpaid tax.
When it comes to taxes, it’s always best to be on the safe side. ITP’s Accounting Professionals have helped Australian individuals and businesses for 50+ years. There’s not a lot we don’t know about taxes and finances. If you still have questions about your foreign income, or if you’d like help ensuring you’re declaring everything correctly, please reach out. You can phone 1800 367 487, book an appointment online, or drop in to your nearest ITP branch. and chat about your budgeting needs and how we can help you save on your tax dollar.