Australian Expat Taxation : Frequently Asked Questions (FAQ's)
There are common threads to many of the questions asked by Australian expatriates regarding Australian taxation, although personal circumstances differ quite widely. Provided below are a number of common FAQ's which we intend to continually update and expand:
Q1: I'm a dual nationality (UK/Australian) citizen usually resident in the UK but moving back to Australia mid-December 2017 for a temporary work contract until the end of July 2018. What would be my tax status in Australia and would I be liable for tax on income earned on UK investments?
A : The main issue is whether you will be a resident of Australia or not for tax purposes. If you came back to Australia in December 2017 with the intention of being in Australia for more than 6 months you would generally be considered a tax resident of Australia, unless you could (very) clearly prove that there was no intention to return permanently and you usual abode was in the UK. Therefore your worldwide income would be taxed in Australia. Any tax paid overseas can, however, typically be claimed as a credit or offset against your Australian income tax.
Q2 : I have recently arrived in the UK from Australia to work for a number of years. I want to know if I can transfer the money in my Australian superannuation fund to a UK pension fund, and if so, whether it is in my interest to do so and whether there any tax implications to consider?
A : Under Australian tax rules you cannot currently transfer your Australian superannuation to your UK, or any other overseas, fund with the recent exception of New Zealand. You need to reach preservation age and satisfy a condition of release, which generally means that you are aged 57-65 and retired, to be able to access your super.
An exception is where an individual arrives in Australia on certain temporary work visas – in which case you can access a Departing Australia Superannuation Payment (DASP). This will see you receive an amount equivalent to your superannuation balance less typical tax of 35% (65% if you held a working holiday maker visa during your stay) once you have left Australia. Organising a DASP is quite simple, and most of the procedures can be carried out online.
Note that the UK is one location where you can transfer any accrued pension funds to your Australian superannuation fund if you meet certain requirements. Presently, there are two substantial requirements - firstly that the receiving fund is a Qualifying Registered Overseas Pension Scheme (QROPS) and secondly, as a consequence of changes made in May 2015, you must be aged 55 or older.
Q3 : I am an Australian citizen who has lived outside the country completely for the last five years, in Canada and the US. I have been filing tax returns in my country of residence but have not filed a tax return in Australia since I left. I am now returning to Australia at the end of the year and plan to live and work there for a while. What do I do about declaring worldwide income for the time I've been away.
A: As you have been away for more than 2 years and established a home overseas you will probably be regarded as non-resident for Australian tax purposes. If considered non-resident for the time you were away you would not be taxed on your overseas employment income in Australia. Bank interest or dividends earned in Australia should be automatically subject to withholding tax, on the premise that you have advised your bank or share registrar that you were living overseas, whilst you need to submit an Australian tax return in any year in which you earn rental income. If your property is negatively geared (i.e. producing a tax loss) this may be to your benefit in any event. You should seek advice from a professional tax adviser regarding your residency status – or you may submit an inquiry through this website and professional advice will be arranged.
Q4 : We purchased our property (house) main residence in Melbourne, Australia in October 1996. We departed Australia in December 2009 and have been living in Canada since. We are considering selling the property in the next six months. Would we be liable for Capital Gains tax on the sale proceeds?
A : You generally have six years from the time you rented out your main residence to sell it without any Australian capital gains tax liability. Therefore, if you had sold it by December 2015, you would probably have avoided the application of CGT. This exemption applies on the basis that you do not own another family home anywhere else in the world. CGT will apply on a pro-rated basis and you should seek the advice of a professional tax advisor to calculate and advise regarding any liability, and how it might be minimised. Note that changes announced in 2017, but still pending legislation, would limit access to the main residence exemption to Australian tax residents, meaning that you may need to return to Australia and become resident in order to access the exemption, unless you sell prior to June 30, 2019.
You also need to consider that you may be liable for CGT in Canada and that tax changes implemented in 2012 have removed the 50% CGT tax discount for non-residents, making it less attractive financially to retain a property in Australia. It may also have been in your best interests to have the property professionally valued at the end of the six-year period and as at May, 2012 to lock in the amount subject to CGT exemption and 50% discount.
Q5 : My husband and I expect to purchase a rental property in the US. We are both Australian Citizens and are residing in Australia. Are we required to keep any other records for our overseas investments - outside of those we would normally keep for an investment property here in Australia. Also is it sufficient to notify the ATO of the income from these properties at tax time or do we need to notify them (or any other government department) sooner?
A: When you acquire the investment properties you only need to keep the same sort of records you would keep for an Australian property. In essence, apart from a variety of complexities such as exchange rate conversions, foreign investment properties are now treated in exactly the same fashion, for Australian tax purposes, as domestic investment properties. Note that income from the property will also normally be subject to tax in the US - potentially at both the State and Federal level. You should also seek some professional guidance as to whether the property is best acquired through a limited liability company (LLC) in the US for liability reasons and note that some US lenders will actually require the establishment of an LLC.
Q6 : Do Australians have to pay inheritance tax? If so how much is it and what is the nil rate band?
A: Currently, Australia does not have an inheritance tax or death duty. However, special CGT rules apply in situations where the beneficiary of an estate is a non-resident and the Executors of the estate should obtain appropriate advice - they are personally liable if the appropriate amount of Australian tax has not been paid by the estate. The re-allocation of estate assets can, in some situations, reduce or eliminate a CGT liability with respect to non-resident beneficiaries.
Q7 : My spouse and I are dual UK and Australian citizens who are considering investing in a home in Australia which we would rent out on a long-term rental or lease. We want to know how this would affect both our UK and Australian tax liability. In particular, we want to be sure we wouldn't be taxed twice on the same income and we want to know how depreciation would work in Australia, assuming that the income from the property would be taxed once, here in Australia.
A: Even though you are dual citizens, the assumption is made that you are not currently Australian Tax residents:
If you buy a rental property in Australia then the net profit is taxable in Australia. If the result is a loss then the loss is carried forward in Australia and may be available to use when you next become resident in Australia to offset income tax, or capital gains tax on sale of the property. To determine the net profit or loss the rent is reduced by expenses relating to the property. These would include the rates, insurance and cost of maintenance; interest on a bank loan to buy the property would also be deductible. Depreciation on the chattels and building allowance on the cost of construction would also be deductible. To claim depreciation and building allowance you will need a qualified valuer to value the property and chattels to be able to calculate the depreciation.
If there is a profit in Australia, then tax would be payable here and in the UK. However, under the double tax agreement, the UK would give you a credit or offset for the tax paid in Australia against your UK tax liability. We would recommend that you check the UK tax implications with your UK advisor. We can also provide access to an adviser that can provide both UK and Australian tax advice and submit tax returns in both countries, which have different tax years.
Q8 : I have been living overseas since March 2012 and I have not put an income tax return in since June 2012. I have bank accounts in Australia in which I have not been paying tax on the interest and have just realised that I am meant to. I also plan on sending a lump sum home and wanted to know what sort of tax I will be required to pay on this. I would like to sort it all out as I plan on returning to Australia within the next year. Also, if I return to Australia in the middle of a financial year, do I have to pay tax on my earnings from the UK?
A : In respect of the bank accounts, we suggest that you write to the Bank and notify them that you are a non-resident of Australia. The Banks will then apply a 10% withholding tax to the interest you earn prospectively. For the previous years, you will need to complete an Australian tax return in respect of each year in which you did not pay withholding tax - and an interest/penalty payment may be applicable.
The lump sum of money you send into Australia will generally not be taxable as you are very probably not a tax resident of Australia but there may be a tax liability in the UK on the sale of the assets converted to cash. You should presume however that you will be approached by the ATO to provide proof in relation to the source of funds remitted to Australia and you need to retain supporting documentation.
If you return to Australia part way through the year, the issue is whether you are returning for good or only for a holiday? If you are returning for good then you will be taxable on your worldwide income in Australia from the date of your arrival. The current tax-free threshold will be pro-rated based on the date of your return from overseas. Be careful that any salary or other payments due to you as a result of service in the UK are made before you become resident again in Australia, or Australian tax may be applicable.
Q9: I am relocating from Los Angeles to Sydney in early October, 2018. I am inquiring about the possibility of moving a 401(k) from the USA to my Australia superannuation fund.
A: Early withdrawals from 401(k) plans can attract significant tax penalties in the US - effectively being taxed at the marginal tax rate plus a 10% tax penalty prior to age 59.5. These withdrawal costs can sometimes be avoided entirely, or reduced considerably, but it depends on a number of individual factors – such as whether you are an American citizen (or green card holder) or an Australian working on a business visa in the USA, and your age.
However, once you again become an Australian tax resident, Australian tax may apply to the gain in the value of the fund and much turns upon whether the 401(k), or any other pension fund, meets the requirements to be considered a Foreign Superannuation Fund (FSF). There are different sorts of 401(k) with varying procedures around exit, and each case needs to be looked at individually. Similar considerations apply in respect of IRA's, 403(b)'s etc.,
Therefore, it is very strongly recommended that Australian expatriates in the US with 401(k), 403(b), IRA and similar US pension funds seek Australian tax advice before returning to Australia. Similarly, if you have already returned to Australia, no withdrawal of a US pension fund should occur without prior tax advice focussed on ensuring any transfer is carried out as tax effectively as possible.