Item 20 - Foreign source income and foreign assets or property

Assessable foreign pension/salary income: Is the gross income associated with amounts at labels T, L, D and N prior to any expenses incurred in earning that income and covers foreign salary or wages not subject to PAYG withholding and foreign pensions with or without an Undeducted Purchase price.

Assessable other foreign source income: Is the gross income associated with amounts at labels R, M and F prior to any expenses incurred in earning that income and covers foreign rental income, other foreign source income other than foreign salary or wages and foreign pensions or annuities, and Australian franking credits from a New Zealand company.

We pass the sum of these two fields to label E Assessable foreign source income.

Foreign employment income is income you earned working overseas as an employee, other than foreign employment income shown on a PAYG payment summary - foreign employment. The PAYG payment summary - foreign employment income must be entered at item 1 Salary or wages. The Tax worksheet Overseas Pensions/Annuities and Salary Income worksheet (ove) is available at this label.

Exempt or Partially exempt salary and wages:

From 1 July 2017, if you are an Australian government agency employee (and not a member of a disciplined force), you must NOT include here income earned from delivering Australian official development assistance. You must enter this at Item 1. For more information, see item 1 of the Individual Tax Return instructions at ato.gov.au.

From 1 July 2016 Australian public service employees, who work overseas to provide Official Development Assistance (ODA), will no longer qualify for exemption from income tax under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936).

Members of Australian Defence Force (ADF), Australian Federal Police (AFP), State and Territory police forces delivering ODA will maintain their eligibility for the exemption.

The overseas salary or wages worksheet (ove) has been updated to contain a warning message in this regard.

Most foreign pensions and annuities are taxable in Australia, even if tax was withheld from your payment by the country from which the payment came. Examples of foreign pensions and annuities that fall into this category are age and superannuation pensions paid from Austria, Germany, Italy, the Netherlands and the United Kingdom.

If your foreign pension or annuity is taxable, enter each transaction together with any expenses incurred and any amount of foreign tax paid in the Tax worksheet Overseas Pensions/Annuities and Salary Income worksheet (ove).

All amounts will be totalled and integrated to the relevant label L or D. If the amount is a loss, then the amount will be preceded by a hyphen and a /L will be printed on the paper print out.

A foreign income tax offset will be calculated if applicable.

Use the Tax Foreign Rental Property Schedule (ref) to calculate the Gross Assessable amount to be included at label E and to record income and expenses to arrive at net foreign rental income/(loss) and to record any foreign tax paid. This worksheet may be accessed directly at label R. Refer to Foreign Rental Property Worksheet (ref).

Use the Foreign income worksheet (for) to record Other foreign income transactions, including any Australian franking credits from a New Zealand company.

All foreign income, deductions and foreign tax paid must be translated to Australian dollars before completing this item. The foreign exchange rates (FOREX) to be used for the current income year are only updated for that year with the first Tax update issued following the general release as prior to that date they have not been published. The worksheet will calculate the amounts to be included at all relevant labels and any foreign income tax offset entitlement. Where the result of foreign income less deductions is a loss, the loss will be integrated to the relevant label in the tax return.

Lump sum payments

For details click this link to open the Super lump sums from a foreign super fund and Super contributions - too much can mean extra tax on the ATO website.

Use the foreign income worksheet Trans-Tasman Tab to record the details of all Australian franking credits from a New Zealand company that the taxpayer is entitled to, whether directly or by way of franked dividends (or franked non-share dividends) paid by the company, or indirectly through a trust or partnership.

Integration of the foreign income tax offset to label O

We'll pass the total allowable foreign income tax offsets item 20 label O at the time of preparing the F4 Estimate.

Click this link for the information on Item 20 - Foreign source income on the ATO website.

The amount at label U is made up of:

• Item 1 Salary or wages with the Code F (including any additional entries made in the Additional PAYG Summary worksheet (egc)), plus
• any amount of a lump sum payment in arrears on which foreign income tax has been paid, less
• any amount included at items D1 to D5 that have been keyed in the screen behind this label.

There may be an entitlement to a foreign income tax offset for the difference between the foreign tax paid and the Australian tax payable on that income.

The holding dialog at label U provides a breakdown of the amount at the label.

Net exempt foreign employment and pension income amounts integrate from the Overseas Pension Income Worksheet (ove).

If you are using Exempt foreign income to absorb a current year loss, then enter the amount of that Exempt income required to absorb the loss as a deduction entry at either Fully exempt or Partially exempt foreign income and make a corresponding adjusting entry at Other Income, item 24 in the same amount. This will adjust the Exempt foreign income shown at label N and, together with the adjusting income entry at item 24, have the effect of reducing the taxable income.

Exempt foreign employment income is used in the calculation of Notional income for tax purposes in the F4 estimate.

When the foreign source income worksheet (for) is completed and saved, label O will be closed to data entry. Because of the complexity of the foreign tax credit calculation, integration to label O is only performed when you click F4 to produce the Estimate.

If you are not using the worksheets but have entered amounts directly in the fields in the special calculator only box ‘For calculation of estimate only’, then you must not enter an amount at label O. When you click F4 the calculator will fill label O from the amounts you've already entered elsewhere.

To refresh the value at label O, you must press F4 each time any of the amounts at this item are changed.

F4 and the Generic worksheet at label O

Tax has a schedule of one sort or another behind every label. Where there is no ATO schedule, tailored worksheet, grid or holding dialog for the particular label or field, Tax automatically opens a Generic Schedule.

Do NOT attach a Generic schedule to label O as this prevents the F4 function from refreshing label O.

If you have attached a generic schedule, then you must delete it. To do that, select Preparation > Delete Schedules and remove the entry titled ‘foreign income tax offset field (E135)’.

Once the generic worksheet is removed, click F4 to see the value at label O updated.