After learning about the tax regulations for expats in Malaysia, now it’s time to understand how you will be taxed by the Australian government while you are in Malaysia. This guide is specifically for Australian expats living in Malaysia.
Before diving in, it is important to remember that if you are an Australian tax resident working in Malaysia, you must declare all your foreign employment income (income earned in Malaysia) even it has already been taxed by Malaysia.
1. Tax residency status
Your residency status for tax purposes is important because it determines your liability to pay Australian personal tax on your income.
If you have been living in Australia, and have recently left Australia, or intend to leave Australia soon, you can use a tax tool to determine your liability to pay Australian personal tax on your income. You can find the tax tool here: calculators.ato.gov.au
If you remain Australian tax resident while you’re in Malaysia you:
- Must declare all your foreign employment income, including any exempt income and lodge an Australian tax return
- Must declare that income even if has already been taxed in Malaysia
You can lodge your taxes online on the Australian Taxation Office website.
If your residency status changes at any point during a tax year, your tax situation will also change, so make sure to use the tax tool again if there are major changes to recheck your residency status.
Certificate of Residency
A Certificate of Residency is issued by Australian Taxation Office (ATO) to tax residents to prove to foreign governments that they are an Australian resident for tax purposes. To apply for a COR, you need to send a signed letter via mail or fax to the ATO with the following details:
- name of the Australian resident
- residential address of the Australian resident
- tax file number (TFN) and/or Australian business number (ABN)
- country the certificate is for
- number of certificates required
Mailing address: Australian Taxation Office, PO Box 3006, Penrith NSW 2740
Fax: 1300 730 298
The process will take within 28 days if all the necessary documents and details forwarded to ATO are complete and correct.
2. Reporting foreign income
If you are an Australian working in Malaysia, the income you earn here, including salary, wages, bonuses, allowances and commissions, are known as foreign employment income and you have to declare all your foreign employment income – this includes both assessable and exempted income. Again, you must do this even if you have already been taxed on this same income by Malaysia.
You may be exempt from paying tax on your foreign employment income if you are:
- in the Australian defence or police force
- part of an organisation engaged in overseas aid work
If you have already paid Malaysian tax on your foreign income, you have to add the tax amount back into your nett employment income to determine the assessable amount for Australian tax. When filing your taxes, include this income as ‘assessable foreign income’.
3. Claiming income tax offset
If you’ve paid Malaysian tax on your income, then you may be entitled to an Australian foreign income tax offset. The conditions are:
- You must have actually paid an amount of foreign income tax
- You must include the income which you paid foreign income tax in your assessable income for Australian income tax purposes
The differences in tax systems between Australia and Malaysia means that you will pay Malaysian tax in a different income year from the year that the income is included in your assessable income for Australian tax. You can claim this offset after you’ve paid the Malaysian tax.
Here’s a guide on how to claim the income tax offset.
4. Income tax rates
This applies to Australian residents for tax purposes. These rates are for the year starting 1st July 2015 and do not include the 2% Medicare levy or the Temporary Budget Repair Levy which is 2% for taxable incomes over $180,000.
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