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Taxing times for Aussie expats overseas

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Many Australians dream about living and working overseas. However, before packing your bags, we recommend you think about what steps need to be taken to ensure you don’t end up with a hefty tax bill on your return home.

There are some key areas to note.

CGT and the family home

This is usually your biggest asset, and the tax implications can be severe if it’s not managed properly. It’s also about to potentially become even more severe if proposed changes come into effect from 1 July 2019.

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Under the changes, if you sell a property while still overseas you will pay CGT, and the current six-year absence exemption will no longer be available. If you move back to Australia and resume living in the property within six years, the tax-free status is retained. This will, however, only happen if your tax residency also reverts to Australia.

Tax residency

The status of one’s tax residency should be reviewed if you are planning to move overseas for an extended period.

The ATO will determine whether a person’s tax residency has changed based on their particular circumstances and arrangements. As a rule of thumb, anything longer than three years, especially with no fixed return date and a reasonable prospect of staying in the overseas country longer, makes it more likely that tax residency will change.

However, if you’re planning to be overseas for less than two years, it is unlikely the ATO will treat the absence as a change in tax residency. Also, if you intend to move around from country to country then you are more likely to remain an Australian tax resident.

By remaining an Australian tax resident, it is likely that you won’t have issues with CGT, however all of your foreign salary and investment income will be taxed in Australia, with a credit for any foreign tax paid on the income.

Investment properties

While CGT will always apply to the sale of investment properties, the CGT discount 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 you move overseas, there must be an apportionment of the CGT discount for the relevant periods. The same applies for periods between the date you return to Australia and a later property sale.

Other investments

If you become a non-resident then investments such as shares in companies are treated as having been sold at their market value, triggering deemed capital gains or losses unless you choose to defer the tax event. There would be no further Australian CGT implications if your assets are sold down the track while you are a non-resident.

If the investments are still owned when Australian tax residency is resumed, they 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 for the period of Australian tax residency.

Non-resident withholding tax

Non-resident withholding tax is payable on the receipt of unfranked dividends, interest and managed fund distributions, assuming the institution making the payments has been correctly notified that the taxpayer has become a non-resident.

Superannuation

If you’re planning to work overseas for an extended period, you will need to consider what happens to your superannuation contributions and balance. The longer the absence, the harder it will be to build up a super balance sufficient enough to fund retirement. It can be very hard to make up for lost time and advice and planning is recommended.

SMSF members and trustees who lose their Australian tax residency status may also discover that their fund has become non-complying. Careful planning can help anticipate and overcome any negative consequences that may arise.

Peter Bembrick is tax partner at HLB Mann Judd Sydney.

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