Foreign Income Tax Offset – Make sure you are not paying tax twice

double tax agreement foreign income tax offset

A Foreign Income Tax Offset reduces the impact of double taxation by providing you a credit on foreign tax paid when declaring your income in Australia.  Are you able to benefit from a Foreign Income Tax Offset?

How does a Foreign Income Tax Offset reduce the impact of double taxation?

If you were to remain an Australian resident for taxation purposes while working abroad, and are exposed to potential double taxation, then you might be able to mitigate the effects of double taxation through the use of a Foreign Income Tax Offset as part of your Australian tax return.

A Foreign Income Tax Offset works by recognising that if you have already paid foreign tax on income that is also assessable in Australia, you can claim a tax offset for the foreign tax you have already paid on that income.  In some circumstances, the offset might be subject to a limit.

When are you entitled to claim a Foreign Income Tax Offset?

According to the ATO, to be entitled to a foreign income tax offset:

  • you must have actually paid the foreign income tax (obviously), and
  • the foreign tax must be considered by the ATO as a tax on income, profits, or gains, or is a tax subject to an agreement covered by the International Tax Agreements Act, and
  • (obviously) you must have declared the foreign income or gain on which you paid foreign income tax in your assessable income for Australian income tax purposes.

A Foreign Income Tax Offset can only be used to offset the Australian tax payable on the same income, and cannot be used to offset tax on other income, nor can any unused foreign income tax offset be carried forward to offset future tax payable.

foreign income tax offset

With which countries can I claim a Foreign Income Tax Offset?

The ATO website identifies that the following countries (not exhaustive) as countries as having some taxes that are considered eligible for foreign income tax offsets :

  • Argentina, Canada, China, France, Germany, India, Italy, Japan, New Zealand, Singapore, South Africa, South Korea, UK, USA

You should consult your taxation advisor to see whether you are eligible to claim a foreign income tax offset on your foreign income.

There is more than just a Foreign Income Tax Offset when it comes to the taxation implications of living abroad. Make sure you understand the tax implications of being an Australian Expat – Download our Special Report Now!
Download Tax Implications Special Report

If you need expert expat tax advice, have an initial discussion with our partners at GM Tax.  Complete the form below and they will get in touch.

GM Expat Tax

  • GM Expat Tax Inquiry Form

Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way.  The Australian Expat Investor may receive referral commissions from companies referred in this article.


About the author


Craig is an Australian Expat and the founder of The Australian Expat Investor. Craig is passionate about investing, and while Craig cannot give personal financial or tax advice, Craig enjoys sharing investing, tax, and other tips for Australian expats to help them to build their wealth while living abroad and get the most out of their time living overseas. Get his free ebook on 9 Financial Surprises That Could Cost Australian Expats Thousands of Dollars

Leave a comment: