Foreign Employment Income and Australian Tax
Last week Kaylene relocated to Suzhou, China to begin a three-year work contract with a UK-based university. There is a clause in her contract that allows early termination of employment.
Kaylene is one of many young Australians who is attracted to the glamour and excitement of expatriate lifestyle abroad. The latest 2016 ABS (Australian Bureau of Statistics) data shows more than 92,000 Australians have departed the country for business opportunities overseas.
To make it to China, she had to take a pay cut from her Grade 7 role in a local university. But the new job comes with a housing allowance, annual bonus and return air tickets for the family to visit Australia.
What is foreign employment income and should you report it?
Foreign employment income is the earnings of an Australian tax resident who is working abroad. It includes wages, salaries, bonuses, commissions and living allowances.
An individual who is considered an Australian resident for tax purposes is taxed on their worldwide income. Accordingly, they must declare their foreign employment income even if the tax was taken out in the country they were working in.
An Australian resident for tax purposes
Kaylene will need to determine if she is an Australian resident for tax purposes. The ATO has a residency test online to help Australians working overseas to determine their tax status. Bear in mind however, that this tool is very general in nature and the result generated is only indicative and therefore should not be relied upon fully.
All Australian tax residents working overseas must submit an Australian tax return. There are other considerations as well such as investment income, CGT, Medicare levy, and Superannuation. For example, if Kaylene has paid foreign tax on income or capital gains in a foreign country, she may be eligible for foreign income tax offset which provides relief from double taxation.
Residency can affect Kaylene’s status. She may cease becoming an Australian tax resident if (among various other factors), she has left the country with the intention of living permanently abroad for a minimum of 2 or more years, her family has relocated with her and the family home has been rented out. Non-residents for tax purposes have a different set of rules.
Individual circumstances
Every Australian going abroad to work may have slightly different circumstances that can affect their tax residency status. The law is also constantly changing all the time.
If you want to learn more about how these rules affect you, or if you need help working out your residency status, we highly recommend that you consider booking in for a tax consultation (below) so that we can run through all the issues for you and set your mind at ease:
One last thing
If you feel that the information in this article was useful, please feel free to share this with any other expat Australians that you feel my benefit from this information.
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