how to calculate my worldwide income

How to calculate my worldwide income for HECS/HELP debt purposes

Long post alert – sadly, as is often the case with with Australian tax, our tax rules are unnecessarily confusing! So it’s probably no surprise that the rules for working out “how to calculate my worldwide income” for HECS/HELP debt reporting purposes are also unnecessarily complex.

So here’s a quick warning in advance that this post much longer than usual – we’re sorry about that folks! But take a read below as hopefully this article will shed some light on what you’ll need to do to calculate and report your worldwide income to the ATO for HECS/HELP debt reporting and repayment purposes!

So let’s jump to it – How to calculate my worldwide income?

The Australian government’s recent budget changes requiring expats and non-residents to report their worldwide income for HECS/HELP debt repayment purposes, has caused plenty of confusion among expat communities around the globe.

So, given the number of enquiries we’ve received about this recently we thought, it’s about time we published an article on this topic.

So firstly, lets review exactly what these new rules entail.

HECS/HELP Debt reporting rules (updated to include 2017 budget proposals)

In the May 2015 budget the Australian federal government introduced new laws requiring expats and non-residents, to report their worldwide income to the Australian taxation office, with the effect that if that income exceeded the minimum HECS/HELP debt repayment thresholds of $54,869 (Note that the 2017 budget proposes to reduce this threshold to $42,000 from 1st July 2018), then a compulsory HECS/HELP debt repayment will be levied by the ATO.

But what a lot of expats don’t realise is that even where their worldwide income does not exceed $54,869, if you earn more than $13,717 than sadly, you are still obligated to report your worldwide income to the ATO.

Expats likely to be potential audit targets!

Personally, I think that the requirement to report your income above $13,7171 but below the HECS/HELP debt reporting threshold is an insidious requirement by the ATO with the hidden intention of keeping tabs on you for the purpose of future audit activity notwithstanding that the ATO has no jurisdiction over the foreign income earned by non-resident expats.

How to avoid reporting your worldwide income (as a non-resident) to the ATO?

To minimise the chances of potential audit activity and to minimise the information that the ATO has on non-resident expats, we’ve been advising our clients that if they have the ability to do so, it would be worth trying to repay their HECS/HELP debts as soon as possible prior to 30 June 2017 so that they avoid having to report any of their foreign income to the ATO in their 2017 return.

IF you don’t have the ability to do so, you’ll need to begin reporting your income to the ATO from 30th June 2017. This means that the ATO will have income about your earnings, that they have no jurisdiction to tax, and secondly, that they will begin to levy HECS/HELP debt repayment notices assessments to you from 1st July 2017, so start putting some money aside for that unexpected liability.

How to calculate my worldwide income?

Okay, so if you’ve read this far, take a look below as I’ll explain the methods available to you (in detail) to calculate your worldwide income.

Although the details about this are relatively scarce, there are three methods that you can choose to use to report your income (see below). As more information comes to hand, we’ll update this post so stay tuned.

Note that you can only choose one method to report your worldwide income each year, but you don’t have to use the same method every year – you can use whichever method suits your circumstances best. The three methods that you can choose to calculate your worldwide income are as follows:

  • the simple self assessment method;
  • the overseas assessed method ; and
  • the comprehensive tax based assessment method.

Simple self assessment method

Using this method, you’ll need to:

  • list all of your worldwide income from all foreign sources earned between 1st July and 30 June of the relevant financial year,
  • convert those foreign currency amounts to Australian dollars (using the nearest actual average exchange rate for the financial year most closely corresponding to the income year as per the ATO’s published foreign exchange tables)
  • add up all of your foreign income (already converted to Australian dollars) and then add that figure to the total amount of any Australian sourced income that you had during the financial year
  • then subtract a standard deduction (specified for your occupation) as determined by Ministerial guidelines from that amount – the result will be the worldwide income that you need to report to the ATO.

Note: At the date of writing, the standard deductions available to for the purposes of determining an expat’s worldwide income have not yet been determined/published by the Minister! Frustrating right?! With the due date for reporting your worldwide income fast approaching, we hope that the Minister will provide the details soon (we’ll publish an update as soon as we know so stay tuned).

The overseas assessed method

If you choose this method, your worldwide income is calculated as follows:

  • Take the taxable income figure from your foreign tax return – Note that this figure will simply be the foreign income as assessed in your foreign tax return
  • convert your foreign taxable income amount to Australian dollars (using the nearest actual average exchange rate for the financial year most closely corresponding to the income year as per the ATO’s published foreign exchange tables)
  • add that figure to the total amount of any Australian sourced income that you had during the financial year
  • the total of these two amounts will be your world-side income under the overseas assessed method

Note: You can only use this method if your overseas tax assessment is for a period of 12 months, and if it overlaps with the Australian income tax year. If neither of these applies then you cannot use this method.

Additionally you cannot use this method if:

  • you received multiple tax assessments from different countries (i.e. you can only use this method if only one foreign country assessed your taxable income); or
  • you have previously used that income assessment to calculate your foreign income.

Comprehensive tax based assessment method

If you use the comprehensive tax based assessment method you’ll need you to:

  • list all of your worldwide income from all foreign sources earned between 1st July and 30 June of the relevant financial year,
  • convert those foreign currency amounts to Australian dollars (using the nearest actual average exchange rate for the financial year most closely corresponding to the income year as per the ATO’s published foreign exchange tables)
  • add up all of your foreign income (already converted to Australian dollars) and then add that figure to the total amount of any Australian sourced income that you had during the financial year – the resultant figure will be your gross worldwide income for the year
  • then, add up all allowable deductions (in Australian dollars) similar to how you would complete an Australian income tax return (i.e. work out what Australian deductions you would be entitled to had you earned that income in Australia rather than overseas) – Note: bear in mind that you’ll need to keep all receipts and calculations to support these deductions so don’t throw anything away. Also note that if the expense was for both work and private purposes, you will only be able to claim a deduction for the work-related portion.
  • Subtract your deductions from your gross worldwide income – the resultant figure is the worldwide income that you will be required to report to the ATO using the comprehensive tax based assessment method

How to report my worldwide income to the ATO?

Once you’ve determined your worldwide income for the year, you can submit your details (along with other information requested by the ATO, such as your occupation and current residential address):

  • yourself via through the ATO’s myGov facility,
  • yourself via lodgement of an Australian tax return via the ATO’s myTax online tax return facility; or
  • we can calculate and report your worldwide income by preparing and lodging an Australian tax return on your behalf

Confusing right? We hear you . . . it’s a lot to take in!

So if you don’t want the hassle of dealing with these obligations, or if you just want some help, book and appointment with us, or send us a message.

We’ll deal with everything by preparing your return quickly, easily and without any fuss so that you can put your feet up and relax, knowing that everything’s in good hands!

Shane Macfarlane
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Shane Macfarlane

CEO & Founder at Expat Tax Services
Shane's an Australian Chartered Accountant and Australian expat tax specialist who's also an expat himself (based in Asia).Shane's passionate about tax and legitimate tax minimisation, particularly as it relates to Australian expats who are often subject to high rates of tax back home in Australia.Beyond tax and accounting, Shane's an entrepreneur, having devised, created and founded a successful accounting startup, Fifo Workpapers (acquired by accounting software giant, Intuit inc. in 2013)

In short Shane's a tax and software techno-geek, who recognised that Australian expats were unable to obtain the specialist advice and quality service, that they needed from their accountants. Accordingly, Shane founded Expat Tax Services to provide Australian expats with access to specialist, quality advice at fair and reasonable prices (no hourly rates, fees quoted upfront with unlimited support included) . . . receive the support and advice you need without having to take second-mortgage to pay your accountant's bill! Speak to Shane & the team today.
Shane Macfarlane
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