Are you an Australian resident for tax purposes? And what are the implications if this changes?

If you are an Australian resident and are thinking of moving overseas, or alternatively, if you are an Australian resident living overseas but thinking of moving back to Australia, what are the potential tax implications?

The first step is to determine whether you are an Australian or foreign resident for tax purposes. This may be different to your residency status for other purposes – for example, you may be an Australian resident for tax purposes even if you do not hold Australian citizenship or permanent residency.

Australian Residents for tax purposes

Tax implications of foreign income as an Australian resident for tax purposes?

As an Australian resident for tax purposes, all foreign sources of income must be declared in your tax return. This will include:

• foreign pensions and annuities
• foreign employment income
• foreign investment income
• foreign rental income
• foreign business income
• capital gains on overseas assets

It is likely that your foreign income will have been taxed in the source country that income was derived, potentially leading to double taxing of the same income. When completing your Australian tax return, any tax you have paid may be able to be claimed as a foreign income tax offset against your tax liability if there is a double agreement in place between the source country and Australia. There are also certain exemptions in place which you may be eligible for depending on your situation.

If you cease being an Australian resident for tax purposes

Foreign income tax implications if you are not an Australian resident for tax purposes?

You are only taxed on your Australian-sourced income, so you do not need to declare income you receive from outside Australia in your Australian tax return.

However, if you have a Higher Education Loan Program (HELP) or Trade Support Loan (TSL) debt and you’re a non-resident for tax purposes – you’ll need to declare your worldwide income or lodge a non-lodgement advice.

If you’re a non-resident you are not entitled to the tax-free threshold. This means you pay tax on every dollar of income you earn in Australia. If however, you were a resident for part of the year, you have a tax-free threshold of at least $13,464. The remaining $4,736 of the full tax-free threshold is pro-rated according to the number of months you were a resident.

CGT implications if you cease being an Australian resident for tax purposes?

If you have left Australia and kept your home as an investment, you may have potential Capital Gain implications. Changes to the current legislation were first announced in the 2017 Federal Budget which delivered a blow to foreign residents and expats with the removal of the Main Residence Exemption for foreign and temporary residents of Australia. Currently this legislation is before the Senate but it is expected that there will be no substantial changes to the proposed legislation.

The proposed legislation changes are that if you a non-resident on the date the contract of sale for an Australian property is signed (as opposed to settlement date), you will be subject to Capital Gains Tax (CGT) on 100% of the capital gain incurred.  For existing properties held before 7:30pm on 9 May 2017 there are grandfather provisions available until 30 June 2019. It would be beneficial for any expat that still holds their main residence in Australia to seek advice in relation to whether they should sell their property prior to 30 June 2019, especially if there is any doubt that they will be returning to Australia to live before this date.

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GeersSullivan Audit Protection Service

What is the GeersSullivan Audit Protection Service?

The GeersSullivan Audit Protection Service provides for the payment of the professional fees otherwise payable by you when incurred as a result of GeersSullivan being required to respond on your behalf, to an Audit, Review or investigation by the Australian Taxation Office (ATO) or the Office of State Revenue.   The ATO now has unprecedented access to data matching that makes it simpler and far more likely that they will audit or review previously untargeted taxpayers

It provides our clients with a fixed, cost effective solution to guard against unbudgeted professional fees, which may be incurred as a result of such an audit review or investigation. The costs of these additional audit fees can be considerable depending on the time involved to properly attend to the matter ranging from several thousand dollars up to tens of thousands.

What is the benefit of the GeersSullivan Audit Protection Service?

The benefit to participate in the Audit Protection Service is that fees incurred by you which are directly related to us attending to an audit, review or investigation will be covered (up to the annual limit specified).  The cost you pay for participation is tax deductible.

We have carefully designed our Audit Protection Service to provide the widest possible coverage for our clients however such items or circumstances as listed below are not covered:

• Audits, Reviews or Investigations where notification was given prior to the inception of cover;
• Punitive costs such as penalty tax, costs, interest or any fine if the ATO auditor imposes final culpability/shortfall penalties of 75% or more, and/or the return is deemed to have been fraudulently lodged;
• Costs for work incurred which should have been done prior to the Audit, Review or Investigation taken place;
• Marketed, mass Marketed, or Tax Exploitation Scheme or arrangements without a product ruling;
• Any matter in relation to Child Support or Child Support Agency;
• Actions in regards to letters from any authority that are educational or advisory in nature: or merely suggest, invite or propose actions to be taken by you; or act as a warning to you may be selected for an audit at a future time; or do not compel you to take any action.

Recently a small business client received an audit notice from the ATO regarding their 2016 Trust Income Tax Return and Business Activity Statements. This was a full audit which covered GST, income tax, salaries and PAYG withholding, superannuation and matters of trust law. The business owners have always maintained their own books but by their own admission were completely out of their depth in answering the auditor’s questions.

Our Audit Protection Service fully covered our clients’ costs incurred and our involvement ensured the client understood exactly what was being asked of them, what matters of law were involved and that all information provided to the auditor went in a concise and logical format.

Our Audit Protection Service starts on the 30th April each year and is valid for a year.

Please contact Andrew Sullivan, Chris Grieve or Ashley Dawson on 9316 7000 if you wish to discuss our Audit Protection Service.

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