How should income-related expenses be entered in Form N-AUS?
If you receive both domestic and foreign income during your stay abroad, it must be determined to what extent business expenses are attributable to taxable and tax-free income. The causation principle applies:
- If the expenses are related to taxable domestic income, they are deductible as business expenses, e.g. meal allowances.
- If the expenses are related to tax-free foreign income, they can be deducted "as" business expenses from the income, and only the reduced amount must be included in the progression clause.
- If it cannot be clearly determined that the business expenses are solely attributable to taxable or tax-free income, the expenses must be apportioned accordingly.
The expenses must therefore be allocated to the tax-free income in the ratio in which the tax-free income stands to the total income received during the period abroad. The proportion deductible as business expenses is determined by the ratio of taxable to tax-free income. This applies, for example, to work equipment, work clothing.
