Do I have to pay tax on money transferred to or from Australia?
Whether you’re freelancing for foreign clients or providing financial support to loved ones abroad, considering the role tax may play in your international money transfer (IMT) is an invaluable exercise and could save you a hefty fine down the track.
According to H&R Block’s Director of Tax Communications Mark Chapman, this means keeping your pulse on when you might need to report a money transfer to government bodies, such as the Australian Taxation Office (ATO) and the Australian Transaction Reports and Analysis Centre (AUSTRAC).
“[AUSTRAC] monitors all large flows of money into and out of Australia and passes on information about suspect transactions to the ATO, who are able to use it to identify any taxpayers who have received taxable income from overseas that they haven’t declared,” Chapman said.
“You should ensure that any taxable events that give rise to a money transfer (such as a sale of an asset) are correctly disclosed in your tax return.”
But how do I know if my money transfer is taxable?
As IMT specialist TorFX’s Managing Director, Nigel Fox explained, your tax obligations will largely depend on the source of the funds you’re sending or receiving from overseas.
“If you’re a resident of Australia, you’re required to pay tax on any income earned overseas. This includes business income, international investment income, overseas employment income, foreign pension and any capital gains on overseas assets,” Fox said.
“Taxes aren’t applied if the money transferred from an international source is classified as a gift and will be a one-time occurrence. However, you should definitely take independent advice and check whether your transfer is classified as such, as not all gifted or donated payments fall within this category.”
To help you out, here’s a neat breakdown of when tax may or may not apply to an Australian resident’s movement of money into the country:
Chances are you’ll need to disclose an international money transfer that involves:
- Income from an overseas business or business assets
- Income from an overseas property
- Wages or salary from an overseas job
- Foreign investment income (e.g. bank interest, dividends)
- An overseas pension or superannuation
The following transactions are unlikely to have any tax implications:
- Gifts. Bear in mind that the ATO will keep a close eye on large ‘gifts’ from family that may actually be disguised taxable income (e.g. profits gained from selling a family property).
- Windfalls (e.g. lottery wins)
- Any initial money transferred when you first move to Australia. For instance, if you sold your house in the UK before migrating to Australia and then moved all that capital over here to help with buying a new home, that’s usually tax-free. Chapman said this is because “the taxing event - the disposal of the property - happened before you became a resident”.
What happens if I don’t declare my taxable money transfer?
If your money transfer isn’t exempt from tax but you fail to declare it on your annual tax return to the ATO, then you could be hit with a fine or face even more severe consequences, including jail time. The maximum penalty for evading tax is 10 years’ imprisonment.
Just bear in mind the lists above of taxable and non-taxable events are merely guidelines rather than hard and fast rules that will fit every Australian’s situation. So to make sure you’re taking the right approach with your IMT tax, here’s a few wise steps to follow:
IMT tax tips
1. Receipts, receipts, receipts
Keep records of all overseas transactions, such as the details of any foreign assets (e.g. property) you’ve purchased or sold. You should also take this precaution with any money you send or receive that you think is non-taxable, because the ATO may still ask you about those funds.
“If you receive a substantial sum that you believe to be tax-free, like a gift, make sure you can prove that it is a genuine gift and can provide evidence of the ultimate source of the funds,” Chapman said.
2. Seek expert advice
Doing your taxes at the end of every financial year is difficult enough, let alone figuring out the nuances of tax for money transfers across borders.
“Dealing with the Australian tax implications of overseas transactions can be tricky and it pays to get professional help to help you understand and meet your obligations,” Chapman said.
So to avoid any nasty surprises later on, get in touch with a tax professional before transferring a lump sum to Australia.
3. Choose a reputable money transfer provider
The rule of thumb is to check whether or not your IMT provider is regulated and authorised by ASIC (Australian Securities and Investments Commission). If so, they should have their AFSL (Australian Financial Services Licence) number on their website, usually in the footer.
This number essentially tells you that the provider is legitimate, and abides by AUSTRAC regulations and obligations such as reporting their financial transactions and any suspicious activity.
For more information, check out our article on how to boost the safety of your money transfer.
Or if you’re ready to send money overseas, scroll down below to compare your IMT options for AUD/USD exchange rates, or jump over to our international money transfer hub to view offers for other exchange rates.