I wrote at length about paying tax on freelance writing earnings as an international writer in an earlier post (here: http://ravens-writing.blogspot.com.au/2011/12/paying-tax-as-international-freelance.html)
The original post looks at tracking your ACTUAL foreign income earnings from other countries in each different currency. It also looks at being accurate about tracking your converted earnings to your local currency as soon as you earn it so you're able to pay taxes correctly in the right currency.
While I provided a few examples to illustrate where you should be paying your own taxes, one reader offered an example I didn't cover.
What about this. A further complication....
Australian writer, living in Spain for the year.
Australian government still classifies me as a resident for tax purposes. Spanish tax office says I need to pay tax here as I will be here for more that 180 days.
Any advice before I pull my last hairs out.
That's an interesting dilemma - but it's not impossible.
Here's how I would work this situation:
Let's assume Jords is earning a mix of US dollars, Euros and UK pounds. Being an Australian writer, Jords still needs to pay taxes in Australia to the Australian taxation office each year.
However, the Spanish tax office wants Jords to pay taxes on earnings in Spain as well. I note that the Spanish financial year runs from 1 January to 31 December, while the Australian financial year runs from 1 July to 30 June. This overlap is a real pain in the @$$ (it's also the same overlap with the Aussie to US financial year).
I don't have to pay tax in Spain, but I sometimes end up paying tax in the US during that overlap of financial year.
So... let's get into it.
Step One: Create a spreadsheet that shows precisely how much was earned in foreign currency AND how much that converts to in Aussie dollars in the next column. Create a new column to reflect how much the same amount converts to in Euros. Tally each column at the end of the reporting timeframe.
Step Two: Register your Australian writing business to complete your BAS (Business Activity Statement) quarterly via the Australian Taxation Office web portal. (this is a painful exercise all by itself.... but awesome once it's set up)
Step Three: Enter ALL your non-Australian writing earnings into the 'foreign income' category, (no GST paid on foreign income - yay) but be ABSOLUTELY certain you enter the Australian-dollar equivalent amount into the form. If you also earn Aussie dollars, enter that amount into the regular income section, along with any GST claimed (if applicable). Provide a total income amount and your quarterly PAYE tax amount will be calculated automatically for you. You CAN amend this down to zero on the online form if you wish, but it's not usually a good idea.
Step Four: Declare any tax you have already paid to the Spanish tax office on your quarterly BAS AND your annual Aussie tax return. After all, you don't want to be paying taxes on the same income twice in two countries!
Step Five: Declare any tax you have already paid to the Australian tax office on your Spanish tax return. From what I can tell, Spain won't care what you've already paid elsewhere. But the Aussie tax office DOES! They should (.... remember the operative word here is should!) reduce the amount of tax owed here in the form of a tax credit for amounts already paid overseas on the same income amounts.
Step Six: Keep track of the two different end-of-financial year dates and be aware of the overlap. Always double-check your conversion rates and always report in the correctly converted currency. You're reporting in two different countries with very different tax laws, so it matters that you get it right.
Step Seven: Learn as much as you can about what's deductible in which tax system for where you live. After all, there are some benefits to earning foreign income living abroad in terms of deductions and costings with the ATO. This will help keep your taxes down :)
***Important Note: I am not an accountant! I am just a freelance writer earning money from multiple countries in a variety of currencies.***
I hope this helps :)