Australian expat tax accountant and preparing the tax return

An Australian expat tax accountant will need to consider numerous issues when preparing the Australian tax return of an expat.

Preparing the tax return of an expat can be complex. Some of the issues that will be need to considered include the following:

1. The taxpayer’s tax residency position.
2. The CGT implications.
3. The application of the Double Tax Treaty where applicable.
4. Australian source income.
5. The residency impact on trusts, companies and superannuation held by the taxpayer; and
6. Withholding tax obligations

1. Residency

The first important point will be to determine the individuals tax residency status. An expat that remains an Australian tax resident will remain liable to Australian tax on their worldwide income, while a non-resident will only be subject to Australian tax on any income derived from an Australian source.

It will also be important to consider the position under the Double Tax Agreement as this will allocate taxing rights where the taxpayer is a dual resident.

2. CGT

While Australian tax residents include all capital gains and losses in calculating their net capital gains, non-residents only include capital gains and losses in respect of CGT assets that are Taxable Australian Property. Accordingly, it is important to understand what assets are Taxable Australian Property, and in particular the CGT impact at the time of ceasing to be an Australian tax resident.

Since May 8, 2012, non-residents no longer have the privilege to apply the 50% CGT discount for reducing their capital gains. Eligibility for the 50% discount depends on when you acquired the asset and how long you have been a resident.

Foreigners selling their Australian main residence while residing abroad are no longer eligible for the CGT main residence exemption.

3. Trust Distributions

The tax issues in relation to trusts and non-residents are complex. Dealing with non-residents typically involves addressing three key issues.

• The tax treatment on the beneficiary of the trust in relation to distributions of income;
• Capital gains made by the trust; and
• Section 99B.

It is important to recognise that if an Australian trust becomes a non-resident trust as a result of the trustees moving overseas, this will trigger CGT in respect of the assets held by the trust at this time.

A trust qualifies as an Australian resident trust when:

• At any time during the income year, the trustee of the trust is an Australian resident; or
• At any time during the income year, the central management and control of the trust is in Australia.

4. Tax Rates

Different tax rates apply to Australian resident taxpayers vs non-residents.

A taxpayer will receive a pro-rated tax-free threshold when they cease or commence Australian tax residency in a given year.

Non-residents will also be subject to Australian withholding tax on certain amounts of Australian source income (dividends, interest and royalties). The rate of withholding tax will normally depend on the application of the relevant Double Tax Treaty.

5. Requirement to prepare a Tax Return

When a taxpayer starts or ends Australian tax residency in a given year, they will get a pro-rated tax-free threshold.

Typically, you can exclude income subject to final withholding tax from your Australian return when final withholding tax has been applied. If withholding tax hasn’t been applied, non-residents must include such income and make sure they apply the appropriate withholding tax rate according to Australian domestic law and the relevant Double Tax Treaty.

6. HECS Debts

From 1 July 2017, non-residents are now required to report their worldwide income on an Australian tax return. Where worldwide income exceeds the HECS thresholds, they will be required to make repayments of the HECS debt.

Please do not hesitate to get in touch with us if you have any questions in relation to the preparation of your tax return and we would be happy to assist.