220.127.116.11 Target Foreign Income
This section contains one topic on the assessment of foreign income as income for the CSHC income test. This section covers the following matters:
- a definition of foreign income and target foreign income,
- the types of applicants with target foreign income,
- assessing target foreign income,
- access to 'blocked' target foreign income,
- taxation agreements, and
- income from foreign business interests.
Definition of foreign income & target foreign income
Foreign income is:
- any amount of income earned, derived or received from sources outside Australia for the person's own use or benefit, or
- a periodic payment or benefit by way of a gift or allowance from a source outside Australia.
Note: Compensation payments made to victims of National Socialist persecution (Restitution payments) are not regarded as income, a gift or an allowance and are not included as foreign income.
Target foreign income 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 tax under the Income Tax Assessment Act 1936 section 23AF and section 23AG.
Act reference: SSAct section 10A(2)-'fringe benefit', section 23(1)-'taxable income'
Policy reference: FA Guide 3.2.4 Target foreign income
Types of applicants with target foreign income
There are numerous types of applicants who may have target foreign income.
Examples: Applicants who have target foreign income may include:
- residents employed outside Australia whose foreign employment income is not taxable in Australia, including, foreign based airline pilots and engineers, employees (1.1.E.87) 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,
- 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 received foreign income in the reference tax year that is not subject to tax in Australia,
- non-residents, partnered (1.1.P.85) to Australian residents, 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 Australian Income Tax Assessment Act.
Assessing target foreign income
When new claims or reassessments are made, CSHC applicants are asked to state the amount of target foreign income received in the reference tax year. The Australian tax year is used, even if this is different from the source country's tax year. Applicants with income from foreign business interests can deduct allowable business expenses from that income amount. Discretion is needed when deciding to verify an applicant's declared target foreign income. If an applicant is unsure whether the foreign income is taxable in Australia, the ATO can clarify the applicant's taxation status.
Target foreign income is added to the applicant's assessable income after it is converted to Australian dollars. The conversion rate is the 'on demand airmail buying rate', available at the CBA on 1 July for the tax year in which the income was received.
Act reference: SSAct section 23(1)-'tax year', section 1071-7 Target foreign income
Access to 'blocked' target foreign income
If foreign income CANNOT be accessed in Australia, it is not income for social security purposes.
Explanation: Some countries have strict exchange control regulations that prevent a person gaining access to income in that country, usually unless the person is actually in that country.
Example: If an applicant visits India and uses $10,000 accumulated credit for living expenses, that $10,000 is considered assessable foreign income.
Policy reference: SS Guide 18.104.22.168 Income from Overseas Payments - General Rules
There are double taxation agreements between Australia and some other countries that are similar to the social security reciprocal agreements. These agreements avoid the dual payment of tax in each country on the same income. If a foreign income amount has already been included in an Australian tax return as a result of a double taxation agreement, it is NOT to be counted again as foreign income.
Income from foreign business interests
Applicants with income from foreign business interests will be able to deduct business expenses from that income amount. Allowable business deductions will be broadly the same as those allowed under the Australian Taxation Act.
Explanation: Business expenses are those expenses that arise from activities directed toward the production of income for that particular business.