Foreign income tax in Australia: what new residents need to declare

The worldwide income obligation

As an Australian tax resident, you must include all of the following in your annual tax return: employment income earned anywhere in the world, business or self-employment income from any country, rental income from overseas property, interest from bank accounts in any country, dividends from shares in companies listed or incorporated anywhere, capital gains from selling assets anywhere (subject to the CGT rules), pension or annuity income received from overseas schemes, and any other income from foreign sources (royalties, trust distributions, partnership income).

This obligation begins on the date you become an Australian tax resident, which for most new migrants is the date of arrival. Income earned before that date from non-Australian sources is not assessable. Income earned after that date from any source is assessable, regardless of whether the funds are brought to Australia or remain overseas (ATO).

The Australian tax system is not a remittance-based system — unlike some countries that only tax overseas income when it is transferred home, Australia taxes the income when it is earned or received, regardless of where it sits.

Double Taxation Agreements and how they work

Australia has DTAs (also called tax treaties) with over 40 countries, including the UK, US, India, China, Canada, New Zealand, Germany, Japan, South Korea, and most other major economies (ATO). These agreements allocate taxing rights between countries and provide mechanisms to prevent the same income being taxed by both countries.

DTAs typically work by giving one country primary taxing rights for certain types of income. Employment income is usually taxable in the country where the work is performed. Dividends and interest may be taxed in both countries, but the source country's tax rate is capped by the DTA (often 10–15%). Capital gains are usually taxable in the country of residence, with exceptions for real property. Pensions may be taxable only in the country of residence or only in the source country, depending on the specific DTA.

When both countries tax the same income, the resident country (Australia) provides relief through the Foreign Income Tax Offset.

Claiming the Foreign Income Tax Offset

The Foreign Income Tax Offset (FITO) prevents double taxation by allowing you to offset foreign tax paid against your Australian tax liability on the same income (ATO). The offset is generally limited to the lesser of the foreign tax actually paid and the Australian tax that would apply to the foreign income.

To claim a FITO, you need to know the amount of foreign income in Australian dollars (converted at the exchange rate at the time the income was derived), the amount of foreign tax paid in Australian dollars, and the Australian tax that would apply to that income based on your marginal tax rate.

If the foreign tax rate is lower than your Australian marginal rate, you pay the difference to the ATO. If the foreign tax rate is higher than your Australian marginal rate, you can offset up to the Australian tax amount — the excess foreign tax is not refundable by the ATO, though it may be reclaimable from the foreign tax authority.

For FITOs of AUD 1,000 or less, a simplified claim process is available — you do not need to calculate the FITO limit separately.

The temporary resident exemption

The temporary resident exemption is one of the most significant tax concessions for new migrants on temporary visas. If you meet all three conditions — you hold a temporary visa, you are not an Australian citizen, and your spouse (if any) is not an Australian citizen or permanent resident — you are classified as a temporary resident for tax purposes and are exempt from tax on most foreign income (ATO).

Specifically, temporary residents are exempt from tax on foreign employment income (except where the overseas work is done on behalf of an Australian employer), foreign investment income including interest, dividends, rental income, and trust distributions, and capital gains from selling foreign assets.

Temporary residents are still taxed on Australian-sourced income (employment in Australia, Australian rental income, Australian interest and dividends) and on foreign employment income where the work is performed while employed by an Australian resident employer.

This exemption means a 482 visa holder with a rental property in India, shares in a UK company, and a term deposit in a South Korean bank does not need to declare any of the income from those sources on their Australian tax return, and pays no Australian tax on that income. The exemption continues for the entire period they hold a temporary visa and meet the conditions.

The exemption ceases the moment the person is granted permanent residency or Australian citizenship. From that date, worldwide income obligations apply in full.

Common foreign income categories for new migrants

Overseas rental income is common among migrants who retain property in their home country. If you are a permanent resident, the net rental income (rent received minus allowable expenses) is assessable, converted to AUD at the exchange rate when the income was derived. If tax is withheld or paid in the source country, a FITO is available.

Overseas employment income during transition is relevant for migrants who continue working for an overseas employer remotely after arriving in Australia. The income is assessable from the date of Australian tax residency. If the work is performed in Australia, Australia has primary taxing rights under most DTAs.

Foreign pensions present specific challenges. Some DTAs allocate pension taxing rights exclusively to the source country; others allocate them to the country of residence. The treatment depends on the specific DTA and the type of pension. UK state pension, for example, is generally taxable only in Australia under the Australia-UK DTA. Private pensions may be treated differently. See the guide on transferring UK pensions to Australia for the UK-specific details.

Interest on overseas bank accounts is assessable for permanent residents. The amounts may be small, but the ATO expects them to be declared. Banks in many countries now report account information to other tax authorities under the Common Reporting Standard (CRS), so undeclared overseas interest is increasingly detectable.

Foreign dividends are assessable, with a FITO available for any foreign withholding tax. DTAs typically cap the source country's withholding tax rate on dividends at 10–15%.

Reporting foreign income on your tax return

Foreign income is reported in the "Foreign income" section of your Australian tax return (also known as the supplementary section of the individual return). You need to convert all amounts to Australian dollars using the exchange rate at the time the income was received or derived. The ATO publishes average exchange rates for each financial year that can be used for income received regularly throughout the year.

You must report the gross foreign income (before foreign tax), the amount of foreign tax paid, and the FITO you are claiming. If you have multiple types of foreign income from multiple countries, each category is reported separately.

Keeping records of all foreign income and tax paid is essential. This includes overseas bank statements showing interest, dividend statements or share registry notifications, rental income records and expense receipts, foreign tax assessments or withholding certificates, and currency conversion calculations.

Retain these records for at least five years from the date you lodge the relevant tax return. If the ATO queries your foreign income, being able to produce supporting documentation promptly avoids complications.

When to get professional help

The interaction between Australian tax law, foreign tax law, and DTAs can become complex quickly. For straightforward situations — a permanent resident with a single overseas bank account earning small interest — you can likely manage the reporting yourself with the ATO's online guidance.

For more complex situations — multiple overseas income sources, ongoing foreign employment, rental property in a country with a different tax year, pension income from a country with a complex DTA — consulting a registered tax agent with international tax experience is strongly recommended. The cost of professional advice is modest relative to the risk of incorrectly reporting foreign income, which can result in penalties, interest charges, or missed offset claims that increase your tax unnecessarily.

Do I need to declare foreign income if the amount is very small?

Yes. There is no de minimis threshold for foreign income reporting in Australia. Even AUD 10 in overseas interest should technically be declared on your tax return. In practice, the ATO focuses compliance activity on larger amounts, but the legal obligation exists regardless of the amount.

What if I already paid tax on my overseas income in my home country?

You report the income on your Australian return and claim a FITO for the foreign tax paid. This prevents double taxation. The FITO is limited to the Australian tax that would apply to the income, so you will not pay more than the higher of the two countries' rates.

Does the temporary resident exemption apply to all temporary visa holders?

It applies to temporary visa holders who are not Australian citizens and whose spouse (if any) is not an Australian citizen or permanent resident. If you hold a temporary visa but your spouse is an Australian citizen, you do not qualify for the exemption.

What happens to my foreign income obligations when I get permanent residency?

From the date permanent residency is granted, you are taxed on worldwide income with no exemptions. All foreign income sources become assessable from that date forward. This transition can result in a significant increase in your tax obligations, so planning for it in advance is advisable.

Can I deduct expenses related to earning foreign income?

Yes. If you earn foreign income that is assessable in Australia, you can deduct related expenses under the same rules that apply to Australian income. For rental property, this includes property management fees, insurance, repairs, and depreciation. Expenses must be incurred in earning the assessable income and must be substantiated with records.