Warning on tax for overseas incomes

By Heaney Business Group

Tax payment on overseas income have been highlighted in recent cases as to why people are paying more tax than they thought they would be when income was made outside Australia.

As an Australian resident earning an income in another country which could include money from overseas investments, the sale of overseas property or dividends from foreign shares / trusts; you will need to declare this income on your Australian Tax Return.

Claiming Foreign Income Tax Offset

Often this foreign income will be taxed at the appropriate rate in the country of origin. You may be able to use the tax that you have paid to claim a foreign income tax offset that can then be used to reduce your Australian Tax bill.

Problems arise when there is a difference in rates of tax or how the tax is applied to the gain; this can mean that you may not have paid enough tax on the gain to claim the offset as ruled by the ATO.

Here is a recent example of where a taxpayer had to pay more tax than expected.

 “The taxpayer in this case, was a resident of Australia but was taxed in the US on gains they made on interests in US real estate. Most of the gains they made were taxed at a concessional rate of 15% (rather than the normal rate of 35%) because the interests had been held for more than one year. Some of the gains were ultimately taxed at 35% in the US.

The capital gains were also taxed in Australia and qualified for the general CGT discount of 50%.

As the taxpayer was a resident of Australia and had paid tax on the US gains, the taxpayer claimed a foreign income tax offset for all of the US tax they paid. However, the ATO amended the tax assessment and only allowed a tax offset for slightly less than 50% of the tax they paid in the US.

The problem for the taxpayer was that while the US and Australia both have tax concessions for longer term capital gains, they operate quite differently. The US applies a lower rate to the whole gain while Australia applies a normal tax rate to half of the gain. Unfortunately for the taxpayer, the Federal Court held that the Commissioner’s approach was correct. If foreign tax has been paid on an amount that is not included in your assessable income, then you cannot claim a foreign tax offset on it. In this case, the portion of the capital gain that was exempt from Australian tax because of the CGT discount was not included in assessable income.”

Different tax concessions

Although the United States and Australia both allow for tax concessions on longer term capital gains, their systems operate quite differently. When it comes to capital gains the US considers the whole gain and applies the lower rate to all of it however in Australia half the gain will be taxed at your normal rate and the other half will attract the reduced rate of tax. Therefore, capital gains exemption will only be applied to a portion of the foreign tax that was paid and can be used to reduce your Australian tax liability.

Other countries have different rules as well if the foreign tax has been paid on an amount of income earnt overseas you may not be able to claim the full amount as a foreign tax offset.

When it comes to foreign assets it is not always as clear cut as it may seem when it comes to offsetting taxes that have been paid overseas. Please consult an accountant to see what is available for your exact situation.  

Call the team at HBG Tax & Accounting to make an appointment on 08 9594 1963 to discuss all your tax needs.

This article was written based on information supplied from Knowledge Shop Newsletter February 2019.

The material and contents provided in this article is of informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

  Category: Tax
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Prepare for Life, Are You Ready?

By Heaney Business Group
Estate Planning

Estate PlanningIf you don’t plan you could learn a hard lesson with assets being lost, family feuds or even money being handed to the government due to you not having made a Will or instructions on where it should be distributed.

For the Australian population, estate planning has become even more important as collectively our wealth has exploded over the last 25 years and looks set to continue.

14.5% of Australian are now 65 years old or over (approx. 3.8 million people). 55% of the country’s wealth is distributed to the Baby Boomer generation who only make up of 25% of the population. Australia is seeing a wealth distribution intergeneration change.

Estate Planning

Estate planning is critical to identify what will happen to your assets and liabilities if something happens to you. Estate planning will give everyone involved piece of mind and make sure your wishes are followed protecting your business partners and beneficiaries.

All of this planning will come in handy when tax outcomes are reviewed and if legal matters are required at a later date.

Being a business owner, you will need to consider a number of different issues that could be caused if you were no longer able to carry out your current role. These issues could include:

  • Who would perform your role?
  • Will your beneficiaries take a share of the business?
  • Will the business need to be sold?

These questions and many more can be considered as part of your estate planning requirements. This kind of planning is very important to help protect your beneficiaries and any business partners attached to the business, plus relieve any anxiety that could be associated with business structure going forward.

Estate planning does not have to be hard work, but it does have to be planned.

Other things to consider when planning your estate other than money could be

  • The care and maintenance of minor children.
  • Managing the respective rights and expectations of beneficiaries, particularly with blended families.
  • Avoiding disputes between family members.
  • Relationships outside of the immediate family.
  • Managing liabilities of the estate.
  • Assets which may not be capable of immediate realisation or where value will be diluted by realisation.
  • The transfer of assets through generations.

Need Help with Your Estate Planning?

For specific advice on your estate planning needs call the team at HBG Tax & Accounting on 9594 1963 and discuss your situation and requirements.

This article was written based on information supplied from Knowledge Shop Newsletter February 2019.