How is foreign income taxed for Australian residents?

Australian tax residents must declare their worldwide income on their Australian tax return — this includes income earned in any country while they are an Australian resident. Foreign income must be converted to Australian dollars using the ATO's exchange rates.

Types of foreign income that must be declared:

• Foreign employment income (salary, wages, bonuses)
• Foreign business income
• Foreign investment income — dividends, interest, rent from overseas property
• Capital gains on foreign assets
• Foreign pension and annuity income (subject to some treaty exemptions)
• Foreign social security payments

Foreign income tax offset (FITO): If you paid tax on the same income to a foreign government, you may be able to claim a FITO to reduce the Australian tax payable on that income. The offset is capped at the lesser of the foreign tax paid or the Australian tax payable on the foreign income. You cannot get a refund from the FITO — it can only reduce your Australian tax to zero on that income.

Foreign employment income exemption: There is a limited exemption for certain foreign employment income (section 23AG) — specifically for income earned while working overseas for a continuous period of more than 91 days in a recognised project (e.g. international aid, government service) or for certain other defined activities. This exemption was significantly narrowed from 1 July 2009 and no longer applies to most private sector employment.

Record-keeping: Keep payslips, bank statements, and tax receipts from the foreign country. The ATO expects you to be able to substantiate all foreign income amounts.