au-foreign-income

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# Australia Foreign Income -- Resident Taxpayers Skill v1.0

## Australia Foreign Income -- Resident Taxpayers Skill v1.0

> **General reference only.** This skill is general tax/accounting reference material for AI-assisted workflows. It has not been reviewed for any specific person's facts, documents, elections, deadlines, residency, filing status, or local procedures. Do not rely on it to file, pay, amend, or take a tax position without review by a qualified professional in the relevant jurisdiction.

> **Scope.** This skill covers FOREIGN INCOME OF AUSTRALIAN TAX RESIDENTS (individuals). It does NOT cover foreign residents' Australian-source income (see au-nonresident-cgt), companies' international tax (transfer pricing, thin capitalisation), or GST on cross-border supplies.

## Section 1 -- Quick reference

**Read this whole section before computing or classifying anything.**

**Quick reference**

| Field | Value |
| --- | --- |
| Country | Australia |
| Primary legislation | ITAA 1997 ss 6-5, 6-10; Div 770 (FITO); Div 775 (forex); Subdiv 768-R (temporary residents); ITAA 1936 ss 23AF, 23AG; TAA 1953 Sch 1 (overseas HELP assessments) |
| Tax authority | Australian Taxation Office (ATO) |
| Income year | 2026-27 (1 July 2026 -- 30 June 2027) |
| Core rule | Residents: assessable on worldwide income (s 6-5(2)) -- ordinary + statutory income from ALL sources |
| FITO cap | Australian tax payable on the foreign-taxed and other foreign income (the "offset limit", s 770-75) -- lesser of foreign tax paid or the limit; excess never refunded or carried forward |
| FITO de minimis | Foreign tax paid <= $1,000: claim the actual amount, no limit computation needed |
| s 23AG scope (2026-27) | Confined to: delivery of Australian official development assistance (ODA) by non-government employers; developing-country relief funds; public disaster relief funds; certain prescribed charitable/religious institutions; disciplined force deployment -- 91+ continuous days required; NOT available to Australian government agency employees delivering ODA |
| Temporary residents (Subdiv 768-R) | Most foreign-source income NANE; overseas employment/services income may still be assessable; CGT limited to taxable Australian property; CGT discount apportioned for post-8 May 2012 assets |
| Individual return labels | Question 20 -- foreign source income (labels incl. 20M net foreign employment income, 20O foreign income tax offset, 20P overseas assets >= $50,000 flag); foreign capital gains at question 18, not 20 |
| Medicare levy / MLS | Foreign income counts -- levy is 2% of taxable income (which includes worldwide income); FITO can reduce levy and MLS after tax payable is nil |
| HELP overseas debtors | Worldwide income reporting from 2016-17; overseas travel notification within 7 days if overseas 183+ days in 12 months; report by 31 October; 2026-27 minimum repayment threshold $69,528 (marginal system) |
| Currency conversion | RBA rates from 1 Jan 2020; transaction-date rate or average rate per the translation rules (s 960-50); functional currency rules (s 960-70) generally not for individuals |
| Contributor | Open Accountants |

**Conservative defaults**

| Ambiguity | Default |
| --- | --- |
| Unknown residency status | Treat as Australian resident taxed on worldwide income; STOP and escalate if genuinely unclear (residency is threshold -- see au-tax-residency) |
| Foreign tax "paid" unclear (withheld vs assessed vs final) | Treat only tax actually paid (or deemed paid) and evidenced as FITO-eligible; accrued/unpaid foreign tax does NOT count |
| Unknown exchange rate evidence | Use ATO annual average rate for the income year; flag that transaction-date rates may be required (e.g. capital gains, one-off receipts) |
| Foreign employment exemption (s 23AG) claimed | Assume NOT exempt unless the facts map exactly to the confined 2026-27 categories AND 91+ continuous days |
| Overseas asset holding >= $50,000 unclear | Answer "Yes" at 20P and keep the supporting schedule |
| Temporary resident status unclear | Assume NOT a temporary resident (worldwide income assessable) until visa + Social Security Act tests confirmed |
| Foreign pension with possible UPP | Include gross; claim UPP deductible amount ONLY with an ATO determination or solid computation; escalate valuation questions |
| Foreign tax year straddles two Australian years | Apportion to the Australian income years the income aligns with; flag both years |

## Section 3 -- GL sweep library

Foreign income hides in bank feeds, e-wallet exports and platform statements -- never trust the client's "I have no overseas income".

**GL sweep library**

| GL pattern | Likely issue | Action |
| --- | --- | --- |
| Foreign bank interest credits (UK, US, NZ, SG accounts) | Assessable interest income | Convert at average rate; gross before foreign withholding; FITO for foreign tax withheld |
| Dividend credits from overseas brokers (IBKR, Stake, Computershare US) | Assessable dividends (no franking; NZ imputation NOT claimable) | Gross-up to pre-withholding amount; FITO for withholding; check treaty rates |
| WISE / REVOLUT / PAYONEER receipts | Mixed: own transfers vs foreign income vs client payments | Characterise per transaction -- client payments are business/employment income; own-account transfers are NOT income |
| Overseas payroll deposits (foreign employer, no PAYG) | Foreign employment income | Assessable in full; PAYG instalments flag; FITO for foreign tax; s 23AG screen |
| AIRBNB / BOOKING.COM / VRBO payouts for overseas property | Foreign rental income | Gross rent assessable; deductions at Australian rules (interest, rates, repairs, depreciation); FITO for foreign tax on net rent |
| Foreign super/pension periodic payments (UK SIPP, US 401k/IRA, NZ KiwiSaver) | Foreign pension income -- assessable | Include gross less any ATO-determined UPP deductible amount; lump sums escalate (R-AU-FI-4) |
| RSU/ESPP vesting from a foreign employer | ESS discount income (question 12) + foreign tax creditable | Not question 20 income, but FITO at 20O can include foreign tax on ESS discounts |
| Crypto exchange withdrawals to AUD (foreign exchange) | CGT events, not "foreign income" per se | Route to CGT schedule (question 18); FITO possible for foreign tax on the gain |
| Regular small foreign transfers labelled "family support" | Possible foreign income vs gifts/loans | Evidence of gift/loan or treat as income; escalate remittance structuring |
| Foreign currency account balance movements | Div 775 forex realisation events | Check $250k balance election eligibility (s 775-230); otherwise gains assessable/losses deductible |
| Journal reclassifying foreign income as "loan from relative" | Concealment risk | Refuse without documentation; escalate |

## Section 4 -- Worked examples

### Example 1 -- FITO cap where foreign tax exceeds Australian tax on the income (2026-27 rates)

Resident employee: Australian salary $60,000; US consulting income A$20,000 (net of nothing; gross); US tax withheld A$6,000 (30%). No deductions. Taxable income $80,000.

```
Step 1 -- Tax on $80,000 (2026-27 rates incl. 2% Medicare levy):
  Income tax: $4,020 + ($80,000 - $45,000) x 30% = $4,020 + $10,500 = $14,520
  Medicare levy: $80,000 x 2%                                          = $1,600
  Total step 1                                                          = $16,120

Step 2 -- Tax payable disregarding the foreign-taxed income ($20,000):
  Taxable income under assumptions: $60,000
  Income tax: $4,020 + ($60,000 - $45,000) x 30% = $4,020 + $4,500     = $8,520
  Medicare levy: $60,000 x 2%                                          = $1,200
  Total step 2                                                          = $9,720

Step 3 -- Offset limit = $16,120 - $9,720                              = $6,400

FITO = lesser of foreign tax paid ($6,000) and limit ($6,400)          = $6,000
```

Result: full $6,000 offsettable. Had the US tax been $7,000, the offset would cap at $6,400 and the $600 excess is lost forever -- no carry-forward, no refund, no pooling into next year.

### Example 2 -- Foreign rental property with deductions and FITO

UK flat rented all year. Gross rent GBP 12,000; UK expenses GBP 4,000; UK tax paid on net GBP 1,600 (20%). Annual average rate 0.50 GBP/AUD.

```
Gross rent:     GBP 12,000 / 0.50  = A$24,000
Deductions:     GBP  4,000 / 0.50  = A$ 8,000   (Australian deductibility rules applied)
Net foreign rent                     = A$16,000  (label 20, net foreign rent)
UK tax paid:    GBP  1,600 / 0.50  = A$ 3,200
```

Taxpayer's other Australian taxable income: $90,000. Taxable income total $106,000.

```
Step 1 tax on $106,000: $4,020 + 30% x $61,000 = $22,320; levy $2,120  = $24,440
Step 2 tax on $90,000:  $4,020 + 30% x $45,000 = $17,520; levy $1,800  = $19,320
Offset limit                                                           = $5,120
FITO = lesser of $3,200 and $5,120                                     = $3,200
```

Note: the UK tax was computed on UK taxable rent (GBP 8,000); if UK depreciation/reliefs differ from Australian deductions, the FITO still uses tax actually PAID, but the offset limit uses the AUSTRALIAN net income figure.

### Example 3 -- UK pension inclusion with UPP determination

UK resident-turned-Australian-resident receives UK State Pension GBP 11,500/year + a private UK pension GBP 6,000/year with an ATO-determined UPP deductible amount of A$2,000. Average rate 0.50.

```
Gross foreign pensions: GBP 17,500 / 0.50 = A$35,000  (assessable in full -- s 6-5(2))
Less UPP deductible amount (D11)          = A$ 2,000
Net foreign pension (label 20)            = A$33,000

From openaccountants/openaccountants, AGPL-3.0.

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