Foreign Business Income

Are you an Australian? Are you running business overseas? Then you are taxed on your worldwide income. It means you have to report all income you receive from foreign business activities on your Australian tax return. The tax treatment of your income depends on a number of factors, such as whether your activities are carried out in a listed country, including the United Kingdom, Canada, France, Germany, Japan, New Zealand, United Kingdom and United States of America.

Australian-owned subsidiaries incorporated in another country

For overseas subsidiary, if they do not meet the ‘active income test’, the Australian owner may be taxable in Australia under Australia’s controlled foreign company (CFC) rules on certain kinds of income earned by the subsidiary, such as dividends and interest. If the overseas subsidiary is resident in one of the listed countries, such as the United Kingdom, the Australian owner is taxable on fewer kinds of income than for countries that are not listed, such as Singapore.

Reporting income from international transactions

If you have assessable income from overseas, you must declare it on your Australian tax return. If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset. Please aware you need to report any foreign employment income you receive that is exempt from Australian tax because we may take it into account to work out the amount of tax you are liable to pay on both your Australian and foreign income. Before we calculate your income and deductions, we  convert all your foreign income, foreign deductions and foreign tax paid into Australian dollars first.

Non-assessable non-exempt business income

There are certain types of foreign business income you receive are not subject to Australian tax. They include:

  • foreign income and gains in carrying on business at or through an overseas permanent establishment, unless the ‘active income test’ is not satisfied and the income or gains are certain kinds of income, such as dividends or interest. If the overseas permanent establishment is in one of the listed countries, fewer kinds of income are not exempt if the ‘active income test’ is not satisfied than for countries that are not listed
  • equity distributions from a foreign company made after 16 October 2014 if you had a minimum 10% participation interest in the company
  • dividends from a foreign company paid before 17 October 2014 if you had at least a 10% voting interest in the company.

If you are running business overseas, then there is much more you should know it, such as when you should complete an international dealings schedule , how specials rules may limit you debt deductions under thin capitalisation rules. It is good to plan it now for your future tax returns so that you can get the maximum benefit available under the law. Please book a consultation with us. (Source, ATO)

Please stay connected and we shall update more on businesses. If you have any enquiry, please contact our Business Mantra experts. You can call us on (08)9242 3555 or email us at info@businessmantra.com.au.


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