Australian tax residents must declare all income earned anywhere in the world on their Australian tax return. Foreign wages, overseas bank interest, dividends from international companies, and rental income from overseas property are all assessable income in Australia. To prevent the same income being taxed twice, Australia’s foreign income tax offset (FITO) system credits tax paid overseas against your Australian tax liability.
Who Must Declare Foreign Income?
If you are an Australian resident for tax purposes, you must declare:
- Foreign wages and salary (including income earned while working overseas temporarily)
- Interest from overseas bank accounts
- Dividends from foreign company shares
- Capital gains on foreign investments
- Rental income from overseas property
- Business income earned overseas
- Pensions and superannuation from overseas schemes (depending on the DTA)
Non-residents are only taxed on Australian-sourced income — they do not declare foreign income.
See Australian Tax Residency to confirm your status.
How Foreign Income Is Reported
Foreign income is converted to Australian dollars using the exchange rate at the time you received it (or, for regular income, the average rate for the year — the ATO publishes acceptable annual average rates on its website).
The foreign income is added to your other Australian income and taxed at your marginal rate. Your total tax is then reduced by the foreign income tax offset.
The Foreign Income Tax Offset (FITO)
The FITO prevents double taxation when you have already paid tax on the same income overseas.
How it works:
- Add the foreign income to your Australian taxable income
- Calculate Australian tax on the total
- Deduct the FITO (capped at the Australian tax payable on that foreign income)
The FITO cannot exceed the Australian tax payable on that income — you cannot use it to get a refund greater than your Australian tax on the foreign income. If the foreign tax rate is higher than your Australian rate on that income, the excess credit is not carried forward.
Example:
- Overseas wages: $20,000 (converted to AUD)
- Foreign tax paid: $4,000 (20%)
- Your Australian marginal rate on that income: 32.5%
- Australian tax on $20,000: $6,500
- FITO applied: $4,000 (the lesser of foreign tax paid and Australian tax on that income)
- Net additional Australian tax: $2,500
You do not pay tax twice — you effectively pay the higher of the two countries’ rates.
Foreign Bank Interest
Interest from overseas bank accounts must be declared. Convert to AUD at the exchange rate when credited. The FITO applies if foreign withholding tax was deducted (common in many countries). Tax withheld at source overseas appears on the bank’s annual statement.
Overseas Rental Property
Rental income from property located overseas is assessable. Allowable deductions follow Australian rules — interest, rates, insurance, and management fees are generally deductible to the extent the property is rented or available for rent. Capital gains on sale of overseas property are subject to Australian CGT (no 50% discount for assets held before you became an Australian resident).
Double Tax Agreements
Australia has double tax agreements (DTAs) with over 40 countries, including the US, UK, China, Japan, New Zealand, and most of Europe. DTAs override domestic rules in certain circumstances — they can allocate taxing rights between the two countries and ensure income is not double-taxed through treaty-specific mechanisms rather than the FITO.
See Double Tax Agreements Australia.
Common Mistakes with Foreign Income
- Forgetting to declare it — the ATO has data-matching arrangements with many overseas tax authorities and financial institutions. Undeclared foreign income is a significant ATO focus area.
- Using the wrong exchange rate — always use the ATO’s published rates or the rate on the date of receipt.
- Assuming no Australian tax applies — even if foreign tax was paid, Australian residents must declare the income and reconcile via the FITO.
- Confusing tax treaty provisions — some DTAs give exclusive taxing rights to the source country (e.g., government pension income in some treaties). These are specific and require careful review.
Frequently Asked Questions
Do I need to declare foreign income if I already paid tax on it overseas? Yes. Australian residents declare all worldwide income. The foreign income tax offset prevents double taxation — you receive a credit for tax paid overseas, applied against your Australian tax on that income.
What if I worked overseas on a short assignment? Is that foreign income? It depends. If you remained an Australian tax resident while working overseas temporarily (which most people on short assignments do), the income earned overseas is Australian assessable income and must be declared.
Is my foreign pension taxable in Australia? It depends on the country and whether a DTA applies. Some DTAs specifically exempt government pensions, while others allow Australia to tax them with a credit for foreign tax. This is an area where professional advice is particularly valuable.
Do I pay CGT on overseas property? Yes. Australian residents pay CGT on the disposal of overseas property. The main residence exemption does not apply to overseas property. The 50% CGT discount does not apply to assets that were acquired before you became an Australian resident or while you were a non-resident.
This article provides general tax information. International tax rules are complex and depend on individual circumstances and applicable treaties. For advice tailored to your situation, speak with a registered tax agent with international experience. Find one through the Tax Practitioners Board register.