The article below outlines some of the current tax issues faced by Australian expats from my experiencing in dealing with my clients over the past 6 months.
The first issue that is causing much anger and some panic for Australian expats overseas is the loss of the main residence CGT exemption for Australian expats living overseas.
The CGT main residence exemption is no longer available to non-residents of Australia. Therefore, if you were to sell a main residence and you were living overseas, you would not be eligible for the main residence CGT exemption. However, if you were an Australian resident and you sold your main residence, you would be eligible for the main residence exemption for the main residence period.
It is important that adequate planning is done to ensure that the main residence CGT exemption is not lost and avoid paying full Australian CGT at the time of selling your former main residence in Australia.
Many Australian expats believe they if they leave Australia and work overseas for a “few years” they are non-residents of Australia for tax purposes. Unfortunately, this is not the case.
In order to be considered non-resident of Australia, it will be important to ensure that you are not tax resident under the ‘Domicile’ Test. An individual is a tax resident of Australia if his or her domicile is Australia (which is for most Australian citizens), unless his or her permanent place of abode is outside of Australia.
In considering if an Australian expat has established a ‘permanent place of abode’ outside of Australia, there are no hard and fast rules. Determining the question of fact depends on evaluating all the circumstances in each case.
As a broad rule of thumb, an Australian expat would need to be living overseas in the one country for more than two years and relocate with their family and maintain long-term accommodation in that country.
An Australian expat working in the UK on a Tier 5 visa may still qualify as an Australian tax resident, making them liable for Australian tax on their global income.
Consider preparing either a Reasonably Arguable Position Paper or a tax opinion to reduce or prevent the ATO from applying penalties and interest, if you’re an expat.
It will also be important to consider the position under the relevant Double Tax Treaty to avoid double taxation.
For Australian expats that have been contracting in the UK (as an example) through a limited company and return to Australia, there are some important tax issues to consider.
First, is that if you return to Australia and the company is not liquidated, any amount you receive from the company will likely be subject to Australian tax (up to 47%). AUSTRAC and the ATO now have very sophisticated methods for tracking payments from overseas to Australian bank accounts. Ensure you take care to perform the necessary steps concerning your overseas company before coming back to Australia.
If a foreign incorporated company controls its operations from within Australia, with both the shareholder and director located in the country, tax authorities will treat it as an Australian company. This presents the second issue. Therefore, any profits the company earns may be subject to Australian corporate tax.
It is very common for Australian expats to acquire an Australian property while living overseas either as a future main residence when they return to Australia or as an investment property.
Australian citizens shouldn’t face additional foreign stamp duties. However, it’s crucial to acquire the property in a way that takes into account the availability of the CGT main residence exemption or the 50% CGT discount in the future. Acquiring the property in an improper structure, such as a company or trust, may result in the loss of the CGT exemption.
Furthermore, while banks generally will lend to Australian expats at competitive rates, it is important to look around to find the best deal on your financing as there are specialists lenders that assist expats.
I hope this article was useful and please do not hesitate to give me a call to discuss any expat tax issues you may have as I would be more than happy to have a chat with you.
This document is general information only should not be considered as tax advice. We would recommend that you seek advice from a professional tax adviser to consider your personal situation.
Please do not hesitate to get in contact with us to discuss your circumstances further and we would be happy to assist you further.