Australians are an adventurous bunch; many of us will spend time working overseas – whether as part of a working holiday or during a longer stay. But being out of the country doesn’t mean your tax responsibilities at home disappear, especially if you remain an Australian resident for tax purposes.
International tax for Australian residents
If you’re considered an Australian resident for tax purposes, you may still need to pay tax in Australia on income you earn overseas – even if you’ve already paid tax in the country you’re currently working or residing in. If you have already paid tax overseas, you may be eligible to claim a foreign income tax offset in Australia. However, if the tax rate you paid overseas is lower than the tax rate you would pay on the same income in Australia, then you may need to cover the difference.
For example, if you are working in the UK and pay 20% income tax but the rate in Australia for the same income bracket is 25%, then you’ll need to pay the additional 5% in your Australian tax return. In addition, unless you earn less than AU$27,068 per year, you will also need to pay the 2% Medicare levy in Australia.
International tax for non-residents
Generally, non-residents are not required to pay income tax or the Medicare levy on income earned while working internationally. However, you will still need to pay tax in Australia on any investment income you earn in Australia.
For example, if you own an investment property in Australia, you’ll still need to include your net rental income in your Australian tax return. And rules relating to capital gains tax on properties owned in Australia still apply for non-residents.
The only other tax exemptions on international income are for those employed by the Australian defence or police force, or by an overseas aid organisation.
How to determine if you’re an Australian resident
Determining whether you’re considered an Australian resident for tax purposes is a little complicated and will often depend on your individual situation. However, if you live in Australia for more than half (183 days) of any given tax year, you are generally considered to be an Australian resident for tax purposes in that year.
To qualify as a non-residence for tax purposes, the Australian Tax Office (ATO) must be satisfied that you have a permanent home overseas.
How to report foreign tax
If you are an Australian resident working overseas, or a non-resident with Australian investment income, you’ll still need to complete an Australian tax return. You’ll generally need to add any foreign tax you’ve paid back onto your net employment income to calculate your ‘assessable foreign income’. You can then claim a foreign income tax offset for the tax you’ve already paid overseas.
Make sure you remember to convert all your overseas income and foreign tax paid to Australian dollars when completing your Aussie tax return.
How to avoid double superannuation coverage
Australian businesses are required to make superannuation contributions on behalf of their employees. Some other countries have similar regulations in place, which can mean that, if you work overseas temporarily for your Australian employer, you might have to make super contributions in Australia and in the country you’re working in.
To avoid doubling up your super contributions, ask your Australian employer to apply for a ‘certificate of coverage’ from the ATO before you leave to show your destination country that your super is covered. This will make you exempt from any regulatory super contributions overseas.
While international tax can be complicated, don’t be tempted to leave it out of your tax return. Your employer can help make sure you qualify for a credit on any tax you’ve paid overseas, and help you avoid paying your super contributions twice.