Foreign Income in Australia: What You Must Declare and the Tax Offset

Short answer

If you're an Australian resident for tax purposes, you must declare income you earn anywhere in the world on your Australian tax return — not just your Australian salary. That includes overseas rent, interest, dividends, a foreign pension, and any gain from selling an overseas asset. The good news is that Australia's foreign income tax offset (FITO) credits the foreign tax you've already paid against your Australian tax bill, so in most cases you won't be taxed twice on the same dollar.

Key facts

Do I have to declare foreign income in Australia?

The short answer is yes — but only if you are an Australian resident for tax purposes. Residency for tax is not the same as your visa or citizenship. You can hold a temporary visa and still be an Australian tax resident, and the ATO makes this call using its own residency tests.

As an Australian tax resident, your "worldwide income" is assessable. The ATO is explicit that this includes income you earn overseas, even if you've already paid tax on it in the other country. You "receive" income for tax purposes even if it's held in an overseas bank account for you — you don't get to leave it offshore and pretend it didn't happen.

This catches a lot of people out. If you moved to Australia from overseas and still own a rental property in your home country, earn interest on a foreign savings account, receive dividends from overseas shares, or are paid a foreign pension, all of that is foreign income you need to report on your Australian return.

What counts as foreign income?

Foreign income is broader than most people expect. It includes:

• Foreign employment income — salary or wages from a job based overseas, or remote work for an overseas employer.
• Foreign rental income — rent from a property you own in another country, minus allowable expenses.
• Foreign interest and dividends — earnings from overseas bank accounts, shares, and managed funds.
• A foreign pension or annuity — government or private pensions paid from overseas.
• Foreign business income — profits from a business carried on wholly or partly overseas.
• Foreign capital gains — gains when you sell overseas shares, property, or other assets.
• Royalties and lump sums from a foreign super fund.

A common misconception is "I already paid tax on it in China (or the UK, India, wherever), so Australia doesn't need to know." That's backwards: Australia still wants it declared, and the foreign tax you paid is what unlocks the offset we'll get to next.

How does the foreign income tax offset (FITO) work?

This is the part that makes it all fair. The foreign income tax offset (FITO) exists specifically to stop double taxation. If you've paid tax on income in another country, you can claim a credit for that foreign tax against your Australian tax bill on the same income.

FITO is a non-refundable offset, which means two important things:

1. It can reduce your Australian tax payable to zero, but it can't push it below zero — you won't get a cash refund for any leftover foreign tax.
2. Any unused offset can't be carried forward to a future year.

There's a handy two-tier rule. If the foreign tax you're claiming is $1,000 or less, you simply record the actual foreign tax you paid and you're done. If it's more than $1,000, you have to work out an "offset limit" — a formula that caps the offset at the Australian tax you'd otherwise pay on that foreign income. For most individual taxpayers whose foreign tax rate is lower than their Australian marginal rate, the offset simply equals the foreign tax paid.

FITO also applies against the Medicare levy and the Medicare levy surcharge after your income tax is reduced to nil, which matters for higher-income households who would otherwise face a levy.

One practical step: before you enter anything on your return, you must convert all foreign income, deductions and foreign tax paid into Australian dollars. The ATO provides a foreign income conversion calculator for this. Keep a note of the exchange rate and date you used, because you'll want to be consistent.

How do I work out my tax residency?

Because the whole question of whether you declare foreign income hinges on residency, it's worth understanding the tests. The ATO uses four:

• The resides test — the primary test. If you "reside" in Australia, you're a resident. Factors include physical presence, where your family lives, your business and employment ties, where your assets are, and your social arrangements.
• The domicile test — your domicile (permanent home) is in Australia unless your permanent place of abode is genuinely overseas.
• The 183-day test — you're a resident if you're physically present in Australia for more than half the income year, unless your "usual place of abode" is overseas and you don't intend to take up residence here.
• The Commonwealth superannuation test — a narrow test for certain government employees overseas.

Residency can change part-way through a year, which is why the tax return asks whether you're an Australian resident for the whole year. If you're still unsure, the ATO has a residency tool to help you work it out.

Do I pay capital gains tax on overseas property?

Yes — and this is one of the most misunderstood pieces. Australian residents pay capital gains tax on overseas assets too, including property. The key trap is the main residence exemption: it only shelters a home that was genuinely your main residence in Australia. A property you rent out or leave empty back in your home country won't qualify, so when you sell it, the gain is generally taxable in Australia. This ties directly into how capital gains tax works, which is worth a read if you're planning to sell an overseas asset.

If you've sold an overseas asset and already paid capital gains tax on it in the other country, you can typically claim a FITO for that foreign tax as well.

What records should I keep?

The ATO expects written evidence to support a foreign income tax offset claim. Keep:

• Foreign tax assessments or payment receipts showing the foreign tax you paid.
• Distribution statements from overseas companies, partnerships and trusts.
• Records of any expenses you incurred earning the foreign income (for example, rental property expenses).
• A record of the exchange rate and date you used to convert amounts to Australian dollars.

If you keep your foreign documents in another language, it's wise to keep a translation too. Organising this as you go makes tax time far less painful than digging through a year of overseas bank statements in July.

A quick worked example

Let's make it concrete. Mei is an Australian tax resident who owns a rental apartment in Beijing. In FY2026–27 she earns $12,000 in gross rent and has $3,000 of deductible expenses, leaving $9,000 of net rental income. She pays $1,800 of Chinese tax on it.

Mei declares the full $9,000 as foreign income on her Australian return. At her 32.5% marginal rate, Australia would tax that $9,000 at roughly $2,925. Because she's already paid $1,800 in China, she claims a foreign income tax offset of $1,800. Her Australian tax on that income falls to about $1,125, and her total tax on the rent is $1,800 + $1,125 = $2,925 — exactly what she'd have paid if the rent came from an Australian property. No double tax.

The bottom line

If you're an Australian tax resident, foreign income isn't a "don't ask, don't tell" area — it's income like any other, and the foreign income tax offset is there to make sure you're only taxed once. The two things that matter most: work out your residency honestly, and keep good records of the foreign tax you paid so you can claim it back as an offset.

This is one piece of the bigger Australian tax return picture — and if you're juggling overseas income alongside everything else, understanding how Australian tax brackets actually work will help you see why the offset matters. When in doubt about your specific situation, a registered tax agent can make sure you get both the declaration and the offset right.