Taxation of overseas investments
Australian resident taxpayers are taxed on their worldwide income. This includes employment income, investment income such as dividends, interest, royalties and capital gains from the sale of overseas investments.
As well as being taxed on income received from overseas investments, a resident taxpayer is also taxed on their investment in overseas companies and trusts in which Australian investors in aggregate have a controlling interest of 40% or more. This is achieved under the Australian tax laws by attributing to the Australian resident taxpayer so much of the income of the overseas company or trust as is equal to the Australia’s resident taxpayer’s interest in the overseas company or trust.
Foreign income tax offsets (FITO)
Foreign tax paid on foreign income may be offset against the Australian tax attributable to the foreign income (ie to avoid double taxation). However, there is a limit on the amount of FITO that a taxpayer may claim against Australian taxes (any amount in excess of $1,000 that is paid as foreign taxes is subject to a formula).
Resident corporate taxpayers
Like resident individuals, resident companies are taxed on their worldwide income.
However, concessions under Australia’s tax laws may result in such income being exempt from tax. This occurs where:
- the Australian resident company holds at least 10% interest in the foreign company, dividends paid by the foreign company to the Australian resident company are non-assessable, non exempt income;
- the Australian resident company conducts an active business as a branch office in a foreign country, income earned by the foreign branch is non-assessable, non exempt income of the Australian resident company;
- the Australian resident company has a 10% or greater shareholdings in a foreign company, any capital gain on the disposal of the shares in the foreign company by the Australian resident company is reduced by a percentage equal to the percentage of active business assets of the foreign company as a percentage of its total assets.
