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Expats cautioned over COVID-19 tax traps
With thousands of Australian expats either returning or planning on heading home following the COVID-19 pandemic, an accountant has urged them to look into their tax affairs to avoid a hefty tax bill on their return.
Expats cautioned over COVID-19 tax traps
With thousands of Australian expats either returning or planning on heading home following the COVID-19 pandemic, an accountant has urged them to look into their tax affairs to avoid a hefty tax bill on their return.
HLB Mann Judd tax partner Peter Bembrick believes thousands of returning Australians will need to give consideration towards a range of tax issues, given there are tax nuances depending on the jurisdiction resided in and the length of time spent overseas.
“Even if someone has been living and working abroad for a relatively short period of time, it can still result in a hefty tax bill on their return to Australia,” said Mr Bembrick.
“The nature of COVID-19 also means some expats will have been laid off, so the circumstances dictating their return could be quite stressful. If they’ve got a sound financial strategy in place throughout their stint overseas, it could go a long way in alleviating a lot of the pressure.”
Mr Bembrick urged expats to look beyond their income tax with any share holdings, employee share schemes – particularly in the event of a redundancy, cash in offshore banks accounts and pension funds.
Shares and managed funds will also need to be carefully assessed, particularly if someone has become a non-resident during their time overseas. These types of investments are generally treated under the CGT rules as having been sold at their market value at the time that tax residency changed, triggering deemed capital gains or losses.
“The good news is there would be no further Australian CGT implications if these assets are actually sold while a non-resident. However, if they are still owned when Australian tax residency is resumed, they – along with any new investments – will be deemed to be re-acquired at that time for their current market value, so any future capital gains or losses on sale would relate only to the movement in value during the second period of Australian tax residency, he said.
The tax expert also warned older Aussies who are returning to pay close attention to pension systems, highlighting the estimated 40,000 Australians receiving some sort of UK pension benefits.
“People who have been living and working in London, for example, often on a high income, need to pay close attention to their pension savings and how to transfer the funds back into the Australian superannuation system.
“Another common situation is when people have changed tax residency and paid tax in another country – they may be able to claim a credit for the foreign tax paid upon their return but only if they have the proper records and structures in place,” Mr Bembrick concluded.
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