Double tax agreements (DTA) are agreements between Australia and approximately forty four other countries that aim to prevent double taxation, fiscal evasion, and assist each countries tax authorities in enforcing their respective tax laws.
DTAs do not impose tax but override domestic income tax provisions to produce a taxing outcome that is consistent with the agreements.
When Australian tax residents have foreign income the DTA for the country where the foreign income is sourced needs to be reviewed. The DTA will clarify whether the foreign income is taxable in Australia, taxable only in the foreign country, or taxable in both countries (subject to foreign tax offsets being available to avoid double taxation).
The DTAs with each country are slightly different and different types of income (employment, business, interest, rent, capital gains, etc.) can all have different taxing rules.
For example, Australian tax residents are normally taxed on worldwide income i.e. Australian and foreign income. So, it’s clear that foreign business income is taxable in Australia. But an Australian tax resident with South African business income will need to read the South African DTA to determine how the business income is taxed. The South African DTA agreement states that if Australian tax residents operate businesses in South Africa, that business income will only be taxed in South Africa. This means the South African business income is not taxable in Australia.
The full list of Australia’s DTAs can be found at www.Treasury.gov.au/Policy-Topics/Taxation/Tax-Treaties. The DTAs are subject to constant revision and change so need to be reviewed anytime a taxpayer receives foreign income.