When an Australian resident for tax purposes works in another country for the qualifying period where that income is taxable, then the amount of foreign tax paid or payable by the payer to that foreign government or authority must be reported in Australian dollars to the ATO in the same financial year as the foreign employment income is reported. This is required, even if the tax isn’t actually paid to the foreign government or authority until after the end of the Australian financial year.
Foreign Tax Paid
If the foreign tax paid YTD amount is not known on or before each payday, then the payer may report zero or a reasonable estimate, but must report the correct foreign tax paid, or payable, upon finalisation of the income year where foreign employment income is reported.
Foreign tax paid is only permissible for Foreign Employment Income income type.
As the reporting entity of the foreign income, it is the payer’s responsibility to report the tax paid or payable on that foreign income. This will provide the payer with relief from double taxation, as per section 2.1 PAYG Withholding above. The payee may be entitled to claim a foreign income tax offset (FITO) for these amounts in their IITR.
It is not acceptable to finalise STP reported foreign employment income without any foreign tax paid amounts reported. With the introduction of the Income Stream Collection, the income derived from working overseas for Australian tax residents is now identifiable to each country where the work was performed. The ATO has tax treaties with over 40 countries and exchanges information with those countries on tax matters.
The foreign tax paid or payable is cross-checked with the relevant foreign country governments or authorities. Incurring the liability to pay or paying foreign tax on foreign employment income does not relieve a payer of their PAYGW obligations in Australia.
To align with the methods detailed in the Foreign Employment Income (FEI) sections of the Income Types/Country Codes Position Paper, the foreign tax paid may align with the reporting method of the Foreign Employment Income: Estimates, Actual, EOFY reconciliation. If the qualifying period is not met, the income is not FEI and therefore there is no foreign tax paid.