Overseas Pensions/Annuities and Salary Income worksheet (ove)

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About Foreign Pension and Employment Income

If your received income from a foreign pension or annuity, or income from foreign employment, you must include it your income tax return even if it is held overseas for you.

This income must be included in assessable income even if tax was taken out in the country from which the income came.

Foreign income that is exempt from Australian tax may still be used to work out the amount of tax to be paid - notional income is calculated on an Average rate of Australian tax applied to the other income (s23AG).

If you have a PAYG Summary - foreign employment, the income and the tax paid must be entered at item 1 Salary or wages. Tax will pass those values to the holding dialog at item 20 label U to be used in the calculation of any Foreign income tax offset (FITO).

Do NOT include in this worksheet:

a capital gain or capital loss from a foreign source - item 18 Capital gains deals with these amounts (the amount of any foreign income tax offset you calculate under part H may include amounts of foreign tax paid in respect of a capital gain from a foreign source).

If you have included an amount of foreign capital gain at the capital gains item, then you must disclose the amount of that foreign capital loss in the special calculation only field provided at the capital gains item and then create an entry in the foreign income worksheet at item 20 for the calculation of any foreign income tax offset (FITO) to be calculated correctly.

a lump sum payment of your foreign pension that relates to an earlier year - read A - Lump sum payments in arrears at item 24 (if your arrears amount is exempt from tax do not include it in this worksheet).
payments you received on termination of your employment in a foreign country where the payments were exempt from income tax under the law of the foreign country and you received the payments within 12 months of the termination - item 4 Employment termination payments deals with these amounts.
employee share scheme interests you received at a discount that relate to your foreign employment - item 12 Employee share schemes deals with these amounts. The amount of any foreign income tax offset you calculate under part H.

All foreign income, deductions and foreign tax paid must be converted to Australian dollars before the return is completed.

Conversion to Australian Dollars

Foreign pensions, annuities and deductions are to be converted to Australian dollars at the average exchange rate for the year or the rate that applied at the time the taxpayer received each payment. Foreign employment income is to be converted at the average exchange rate for the year.

What the taxpayer may need

Details of any foreign income-this information may be found on Payment Summaries or pay slips.
Details of any expenses the taxpayer incurred in earning the foreign income.
Details of any foreign tax paid-this information may be found on pay slips.
Most foreign pensions and annuities are taxable in Australia, even if tax has been withheld from the payment by the country that paid it.

Examples of pensions and annuities that fall into this category are age and superannuation pensions paid from the United Kingdom, Italy and Germany.

If the country paying the pension or annuity has taken tax from the payment, and the pension or annuity is also taxable in Australia, a foreign income tax offset may be claimed where the taxpayer is not entitled to seek a refund of the foreign tax from that country. This refund may be allowed under the terms of an agreement between Australia and the foreign country to prevent double taxation.

Alternatively, if the pension or annuity is paid from a country with which Australia has a double tax agreement the taxpayer may be able to arrange not to have tax withheld from the pension income in the country of origin.

If, in the current year, the taxpayer received a lump sum payment of foreign pension that relates to an earlier year, there may be entitlement to a tax offset. If such a payment was received, include it at Other Income item 24 on the tax return. Do not include it at this item or in the worksheet.

Completing Overseas Pension Income

Use the Tax Overseas Pensions worksheet (ove) to convert payments and integrate totals to the relevant return labels.

General Rules

All fields in the worksheet are repeatable as a block of fields so that if the taxpayer has more than one transaction of each type, for example, receives more than one pension from a foreign country, or works for more than one employer overseas, the details of each transaction may be entered. Click Ctrl+Insert or Alt+I to insert a block of fields.

From the data entered, the worksheet will calculate both Assessable and Net Foreign income and return it to the correct labels in the main return, together with any foreign tax paid. These amounts are passed to the foreign income tax offset calculator.

The foreign currency conversion fields require you to enter the currency conversion rate.

Item 1 – Age Pension or Pension/Annuity without an Undeducted Purchase Price

If the pension or annuity received is taxable in Australia, enter the details in the fields provided. If it is not taxable, do not complete this item.

If foreign tax has been taken from your pension or annuity add back the amount of foreign tax paid to the amount of pension or annuity received. This is the Assessable amount.

If the taxpayer is not going to claim a refund of foreign tax from the country that paid the pension or annuity, a foreign tax credit may be available.

Enter any allowable deductible expenses incurred in relation to the pension or annuity income. The worksheet will calculate the net taxable foreign pension or annuity income.

For the current year debt deductions, such as interest and borrowing costs, are not deductible for the purposes of this calculation. If the taxpayer has incurred debt deductions earning foreign pension or annuity income, this must be included at Item D15.

Item 2 – Pension or Annuity with an Undeducted Purchase Price

If the pension or annuity has a deductible amount of undeducted purchase price, enter the details in the fields provided. There may be a deduction available (refer to the relevant Supplementary Deductions Item D11 - Deductible amount of undeducted purchase price of foreign pensions or annuities).

Item 3 – Fully Assessable Salary not subject to PAYG

If the taxpayer earned any foreign employment income while working overseas, other than a lump sum payment on termination of foreign employment, or from a non-resident superannuation fund, that is not exempt from tax, use the worksheet to enter the income and deductions against that income.

Foreign employment income is income from overseas such as salary, wages, commissions, bonuses or allowances.

The foreign income may be exempt from Australian tax on the basis that it falls under:
a) a privileges and immunities agreement or a law covering persons connected with international organisations
b) an exemption for the pay and allowances of members of the Australian Defence Forces.

If the salary or wage is exempt because of these reasons, do not enter this income in the worksheet as it does not have to be included in the taxpayer's taxable income.

If the income is exempt other than for the reasons above, complete Item 4 of this worksheet.

If the salary and wages is partially exempt, complete Item 5 of this worksheet.

Item 4 – Fully Exempt Salary and Wages

Your foreign employment income that is not exempt under step 1 may still be exempt from tax, but. even if it is exempt, it is still taken into account to work out the tax on your other assessable income.

Income from self-employment and contracts is generally not exempt from tax.

If the foreign service was directly attributable to any of the following, then it does not have to be included:

your deployment outside Australia as a member of a defence force or a police force by the Commonwealth Government, a state or territory government, or an authority of such a government, or
the activities of your employer in operating a public fund that is an international affairs deductible gift recipient, or
the activities of your employer, provided your employer is a prescribed institution located or pursuing objectives outside of Australia, or
the delivery of Australian official development assistance by your employer?

The taxpayer's salary and wages may be exempt due to the following conditions:

The taxpayer:

Worked on a project approved by Austrade,

Paid foreign tax on the foreign employment income, or

Had a specific agreement or memorandum of understanding with the government of the country where the work was done and a double tax agreement was in operation.

If the period of continuous employment in the foreign country was 90 days or less, the foreign income is NOT exempt from tax.

Item 5 – Partially Assessable Salary and Wages

Enter any partially assessable salary and wages income and the worksheet will calculate the amount to be included at both Assessable and Net Foreign income labels.

Enter the number of days overseas and the worksheet will calculate the relevant amount to be included in taxable income.

Item 6 – Total Foreign Tax Paid

This is the sum of all amounts of foreign tax paid on foreign annuities, pensions and foreign salary or wages not subject to PAYG withholding.

The summary at the bottom of the worksheet advises the amounts that have been totalled for each of the labels at item 20.