3.2.4 Target foreign income
- definition of target foreign income
- individuals (1.1.I.90) with target foreign income
- assessing target foreign income, and
- access to 'blocked' target foreign income.
Definition of target foreign income
Target foreign income is a component of ATI (1.1.A.20). Target foreign income for FTB, CCS, ACCS and SBP purposes is the amount of an individual's foreign income that is neither taxable income, nor received in the form of a reportable fringe benefit. It also includes income exempted from income tax under Income Tax Assessment Act 1936 section 23AF and section 23AG.
Act reference: FAAct Schedule 3 clause 5(1) Target foreign income
SSAct section 10A(2)-'foreign income'
Individuals with target foreign income
There are many situations where individuals may have target foreign income.
Examples: Individuals who have target foreign income may include:
- residents employed outside Australia (1.1.A.120) whose foreign employment income is not taxable in Australia, including those employees of international organisations such as the United Nations, and employees of approved overseas projects
- residents who receive gifts or allowances of money from any foreign source on a regular basis, including those receiving regular money or gifts from relatives living overseas, which are exempt from Australian tax
- residents who receive income from foreign business interests or investments which are exempt from Australian tax, including migrants with business interests in their country of origin
- newly arrived migrants who expect to receive foreign income in the current year that is not subject to tax in Australia
- non-residents, partnered to Australian residents (1.1.A.130), working in Australia for overseas companies, organisations or governments, including civil servants and defence personnel posted to Australia, non-residents working temporarily at Australian education institutions or visiting students, and
- residents who receive an overseas pension or benefit that is not taxable income under the Income Tax Assessment Act.
Assessing target foreign income
When new FTB, CCS or ACCS claims or reassessments are made, individuals are asked to state the amount of target foreign income they expect to receive in the current tax year. For the purposes of the SBP income test, individuals need to state the amount for the relevant 6-month income test period (for further details on how the income test period is defined for SBP see 4.15.1). The income must relate to the Australian tax year even if this is different from the source country's tax year.
Individuals with income from foreign business interests can deduct allowable business expenses from that income amount. Discretion is needed when deciding to verify an individual's declared target foreign income. If an individual is unsure whether their foreign income is taxable in Australia, the ATO can clarify their taxation status.
Foreign income, after it is converted to Australian dollars, is a component of ATI. Centrelink will convert the income using appropriate exchange rates available at the CBA on 1 July for the tax year in which the income is received. If the exchange rate from 1 July for a particular currency is not available, the exchange rate to be used is the rate available on the last working day before 1 July.
Note: Tax exempt foreign income does not need to be converted as the source of that income is Australia.
The following table shows the available CBA exchange rates for 30 June 2023.*
|European Currency Unit||0.6366|
|New Zealand Dollar||1.1399|
* Note: If appropriate exchange rates are not available for a particular country at the CBA, then Centrelink can use another exchange rate from another financial institution.
Act reference: FAAct Schedule 3 clause 5(2) If it is necessary …, Schedule 3 clause 5(3) If there is no market exchange rate …, Schedule 3 clause 5(4) For the purposes of this clause …
Access to 'blocked' foreign income
If foreign income cannot be accessed in Australia, it is not assessable income for FTB, CCS, ACCS or SBP purposes. This may occur when access is so limited that the income is not 'earned, derived or received for the person's own use or benefit'.
Explanation: Some countries have strict exchange control regulations that prevent an individual gaining access to income in that country, usually unless the individual is actually in that country. There may also be restrictions on how this money can be withdrawn or spent.
FTB and CCS or ACCS would need to be reassessed if the individual visited the country in which they have blocked income, and they gain access to the money.
SBP is not subject to reassessment, as the estimate is based on the 'best efforts' of the individual at the time the claim is made.