International Expat Tax Return 2020

Well, its that time of the year again to start to consider preparing and lodging your 2020 Australian tax return.  For Australian expats, preparing an Australian tax return is often more complex and there are several issues to consider depending on your situation.

We have outlined below some of the tax issues to consider in preparing your 2020 Australian tax return. As always, please do not hesitate to get in touch with us if you have any questions and we would more than happy to assist you.

Australian expats who have relocated overseas

Tax Residency Position

The first key issue to consider for an Australian expat who relocates overseas is whether they are in fact a resident or non-resident of Australia for tax purposes.

This is often a grey area, particularly for expats that relocate overseas on a temporary basis and on temporary work visas. Further advice should be obtained.

A non-resident of Australia will not be subject to Australian tax on their overseas employment income. They will only be subject to Australian tax on their Australian source income (see below).

In contrast, Australian tax residents will remain liable to Australian tax on their worldwide income and employment income. In this scenario, it’s crucial to meticulously examine the applicable Double Tax Treaty (if it applies) in order to establish the jurisdiction entitled to levy taxes and whether income from foreign employment is indeed obligatory to disclose on an Australian tax filing.

Australian Source Income

Non-residents of Australia will broadly only be subject to Australian tax on their Australian source income. This would include Australian dividends, interest and rental income.

In specific situations, Australian source income that is liable for final withholding tax might qualify for exclusion from the Australian tax return.

Capital Gains Tax Election

When an individual ceases to be an Australian tax resident, they must make a choice: either settle the ‘exit tax’ for their CGT assets (excluding Taxable Australian Property) or opt for CGT deferral.

Non-residents of Australia only include capital gains/losses in respect of CGT assets that are Taxable Australian Property.

HECS

If you have a HECS liability and reside overseas, it is important to consider the HECS reporting obligations, including:

• Lodging an ‘overseas travel notification’ form with the ATO; and
• Reporting your worldwide income to the ATO on an Australian tax return. To the extent your worldwide income is over the repayment threshold, a repayment will need to be made.

Australian expats returning home

At the time of commencing Australian tax residency, an individual will be liable to Australian tax on their worldwide income from the date of commencing Australian tax residency. This would include worldwide employment income and investment income, for example overseas shares and rental income.

The applicable Double Tax Treaty will also need to be considered and double tax relief may be available in Australia for any overseas tax paid on that income.

CGT Implications

When someone begins their Australian tax residency, they will be considered to have obtained their tax-exempt Australian property capital gains tax (CGT) assets at their current market value. It’s important to identify which assets fall under the category of taxable Australian property and to assess the potential need for valuation.

Cash Transfers

It’s essential to take tax guidance into account when dealing with the transfer of funds to Australia from international bank accounts.

Foreign Pensions

The evaluation of a foreign pension’s Australian tax status is essential to ascertain its alignment with the Australian tax definition of ‘superannuation’.

A lump sum withdrawal made within 6 months of commencing Australian tax residency would not be subject to Australian tax where the fund qualified as a ‘Foreign Superannuation Fund’.

After residing in Australia for over six months, if you decide to make a lump-sum withdrawal from an international superannuation fund, you will typically be subject to Australian taxation only on the increase in your pension’s value since you became an Australian tax resident.

Where the foreign pension does not qualify as superannuation for Australian tax purposes, it is likely that a portion of the lump sum will be subject to income tax in Australia.

Expats temporarily in Australia due to Covid-19

Australian expats who are in Australia on a temporary basis due to Covid-19 will need to carefully consider their Australian tax obligations.  While this is an area of uncertainty at the moment, the ATO have released some guidelines to assist taxpayers.

Whether or not you are a tax resident of Australia is a question of fact that requires consideration of your circumstances. If you are in Australia temporarily for some weeks or months because of COVID-19 then you should not become an Australian tax resident as long as you usually live overseas permanently and you intend to return there as soon as you are able to.

Nevertheless, Australia might deem you a tax resident if your sojourn in the country extends over an extended duration, without a prompt return to your country of origin when the opportunity arises.

You will be considered a tax resident of Australia where you spend 183 days or more in Australia during an income year.

Moreover, even if you’re not classified as an Australian tax resident during your temporary stay in Australia, your income from work will become subject to Australian taxation if it originates within Australia. Given COVID-19, the ATO have stated that if you are performing employment in Australia temporarily due to COVID-19 for a period of three months or less, then employment income earned in that 3 month period will not be subject to Australian tax.

Nevertheless, if you happen to stay in Australia for more than 3 months, it becomes necessary to assess all the relevant factors and situations to ascertain whether your earnings can be classified as having an ‘Australian connection,’ thereby making it of Australian origin. This would include factors like:

• If the terms and conditions of your employment change;
• If the nature of your employment activities change;
• You perform work for an Australian entity or Australian clients; and
• Australian becomes your permanent place of work.