*Guest post written by Craig Joslin – Founder of The Australian Expat Investor.
Moving overseas is an exciting time in anyone’s life. For some people it means adventure, for others its about experiencing a new culture or perhaps a career opportunity. Whatever the reason, it is important to keep an eye on your domestic financial and tax arrangements as Australian expatriates.
With a little bit of planning, and simply being aware of some of the tax and other financial implications of moving abroad, you could save yourself a lot of money and heartache in the long run.
Here is a short summary of some of the financial matters that all Australian expatriates need to be aware of.
Determine whether you will be considered a resident or non-resident for Australian tax purposes
The ATO use a number of different tests to determine whether you are a resident or non-resident for Australian tax purposes. There are however no conclusive rules, and your residency will be based on the facts of your specific personal situation.
For most Australian expatriates, the most relevant test is the domicile and permanent place of abode test. Under this test, to be considered a non-resident for Australian tax purposes, you need to demonstrate that you have established a permanent place of abode overseas. This will, among other things, require you to demonstrate that you have severed your social and economic ties with Australia, plan to live overseas for at least two years, establish a permanent home overseas, and abandon your residence in Australia (ie. selling or renting out your house).
It is important to get your tax residency determination right, so you should discuss your tax residency with your Australian tax advisor before leaving Australia.
Implications of being a resident or non-resident for tax purposes
If you are considered to be an Australian resident for tax purposes, then you will need to declare all of your global income to the Australian Tax Office. In the event you have paid tax on your overseas income in your new country of residence, then you may be entitled to a tax offset in Australia.
If you are considered to be a non-resident for Australian tax purposes, then your overseas income will generally not be taxed in Australia.
I will touch on more of the consequences of each scenario later in this article.
Self Managed Super Fund Compliance
If you have a Self Managed Super Fund (SMSF), you will need to carefully look at your arrangements to ensure your SMSF remains compliant with current government legislation. This may include needing to suspend all contributions, appoint a new trustee, or you may need to shut down your SMSF.
International money transfers
Sending money to and from Australia will be expensive if you use the traditional international money transfer options with your bank. To ensure you pay minimal fees and get the best exchange rate, you can consider two options.
The first option is a multi-currency bank account with a company like Citibank. However, while multi-currency bank accounts can offer a competitive exchange rate they can come with a number of restrictions, and high transaction fees.
The second option is to use an intermediary online currency broker like Ozforex or HiFx. These companies will provided you a quote for the money you wish to transfer, and if you are happy you can then initiate a transfer. As an example, if you wanted to transfer AUD to a bank account in the UK, you would transfer your AUD into the currency broker’s AUD bank account, and they will then deposit the agreed amount of british pounds into your UK bank account. In my experience you will save between $200 and $400 on a $10,000 international money transfer relative to an international money transfer with your bank, and your money will arrive faster.
Your principal residence retains its capital gains exemption
If you rent out your principal residence in Australia during your time abroad, your principal residence can retain its capital gains tax exemption for up to 6 years from the day you moved out of the property.
If you remain an Australian resident for tax purposes, then :
Medicare levy liability
You will still be liable for the medicare levy and the medicare levy surcharge (if your income exceeds the relevant income thresholds). If you take out an international health insurance policy this will not exempt you from the medicare levy surcharge, and so it may also be beneficial to retain an Australian private health insurance policy whilst living abroad.
If you are no longer an Australian resident for tax purposes, then :
You may still need to complete an Australian tax return
Although, the ATO may consider you to be a non resident for Australian tax purposes, you may still be required to complete an Australian tax return. There are a number of situations where you may need to continue filing a tax return, including if you:
- earn rental income from Australian properties
- receive employment income in Australia during the tax year
- have not paid withholding tax on bank interest or share dividends.
Capital Gains Tax event on your share portfolio
On the day you become a non-resident for tax purposes, the ATO will deem you to have sold your share portfolio, irrespective of whether you sell the shares or not. This means you will become liable to pay capital gains tax on any unrealised capital gain on your share investments. On the flip side, any further capital gains will not be subject to tax in Australia.
You can opt out of this rule, however any further capital gains will be subject to tax in Australia.
Interest on Share or Margin Loans are no Longer Tax Deductible
As soon as you become a non-resident for tax purposes, you are no longer entitled to claim interest on share or margin loans as a tax deduction.
In light of a number of changes in the tax treatment of share investments, a change in your tax residency necessarily requires a rethink in your share investing strategy.
No Capital Gains Discount on Your Property Investments
As a non-resident, you are no longer entitled to the 50% capital gains discount for property investments held longer than 12 months. That is, any capital gains attributable to the period you are a non-resident for tax purposes, will not be eligible for the 50% capital gains discount. As a result, when you go to sell a property, you will need to allocate the capital gain attributable to the period you were a resident and the period you were a non-resident.
This is a guest post by Craig Joslin. Craig is the founder of The Australian Expat Investor – dedicated to supporting Australian Expatriates with the knowledge and tools to continue building their wealth while living abroad. Check out his blog where you can get his free ebook.
Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions.