Despite being the furthest thing from an adventurer’s mind, financial strategy is crucial for any expat planning on returning to Australia, an industry expert has advised.
HLB Mann Judd’s tax partner, Peter Bembrick, has outlined that living and working in another country, even for a short period of time, requires careful planning which should be done well in advance.
“This is particularly important in an environment where the government is looking at different ways of broadening the tax base,” he said.
“For example, we’ve already seen plans to introduce capital gains tax on the family home for expats, which would have included removing their access to the much-loved ‘six-year absence rule’,” Mr Bembrick noted.
The finance expert believes there are a number of technicalities that could adversely affect Aussies who have worked abroad, which can be minimised through planning.
“One consideration for people is what to do with any pension savings they have from another country, such as the United Kingdom, and how to bring the funds back into Australia in order to roll them into the tax-advantaged superannuation system here,” he said.
“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,” he continued.
An advantage of being an Australian is the reduction of capital gains tax, according to Mr Bembrick. However, it also means all of one’s foreign salary and investment income will be taxed in Australia with a credit to any foreign tax paid on the income.
Other areas for expats to consider include:
Shares or managed funds – If someone becomes a non-resident, 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, HLB Mann Judd has outlined.
Investment properties – The CGT discount on the sale of investment properties is not available for any period after 8 May 2012, during which someone is a non-resident. For investment properties already owned at the time an individual left Australia to move overseas, there needs to be an apportionment of the CGT discount for the relevant periods. The same applies for periods between the date they return to Australia and a later property sale.
Withholding tax – Non-resident withholding tax is payable on unfranked dividends, interest and managed funds distribution, the firm has noted. However, any withholding tax deducted should be available to claim as a credit against income tax payable in the other country.
SMSFs – If members and trustees of an SMSF cease to be Australian residents, then the fund can become non-complying. An example of this would be a couple who moves overseas for several years and loses their Australian tax residency status.
HLB Mann Judd outlined that careful planning is required to anticipate and overcome the negative consequences that might otherwise arise.
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