Tax Traps for Aussie Expats
There are a minefield of traps for Australians living and working overseas, that can make it very difficult to prepare a tax return correctly and that allows for sensible tax optimisation and planning for the future.
Fortunately there are many clients who come to our office who have not lodged any tax returns in Australia while they have been overseas. This is good news, as it means we can help them smartly, with the benefit of hindsight, and sometimes achieve better tax results than had they kept up to date, lodging every year on time.
We have had a few ‘unfortunate’ examples, where the taxpayers duly lodged their income tax returns on time, each year, for many years whilst living and working overseas. This was bad news, because although all the returns were up to date, they were all wrong.
Innocent mistakes in preparing and lodging your own tax return can significantly increase your risk with the ATO.
Let’s have a look at a traps for someone who is a non-resident, and:
for a long time, you have had a managed fund investment in Australia. Preparing your tax return, trying to do the right thing, you include part of the distribution that is ‘foreign income’. As a non-resident, you do not need to report foreign income, whether it is from your foreign employment or an investment.
but you have not lodged an income tax return that properly reports your ‘cessation’ of residency. Most likely, the ATO still believes you are a resident, and expect you to be lodging your tax returns each year.
included to your income tax return a franked dividend received Australia. But if you a non-resident, this is exempt income to you, and it should not be reported at all (and the franking credit, is not able to be claimed as a credit, either).
not reported the capital gain or loss on your ‘deemed disposal’ of (relevant) investments. The tax law default, upon ceasing residency, is that you have sold such investments (eg listed Australian shares). But if you do not report the capital gain or loss, the tax law accepts that you have elected not to have taken them out of the Australian tax system, but accepted the ‘deemed disposals’ provisions. You might eventually sell them whilst still a non-resident them in future, for a much greater price and achieve a wonderful capital gain, but the gain will still be taxable in Australia, and you might be surprised by the non-resident rates of tax (no tax free threshold here). You can continue to own them, but the deemed disposal provisions may save you a lot of tax – if only your income tax return is prepared correctly!
Australian tax is not simple, and the issues involved with a non-resident tax return and the tax opportunities are best not ignored, whenever you have a change in your tax residency.
And there are tax planning opportunities that should be addressed, as they may save you a lot of tax and help you avoid a lot of trouble down the track.
The ATO can easily spot errors (any non-resident return showing ‘franked income’), and the ATO may look at your entire affairs much more closely once a simple issue is found.
This is why it can be very risky to make simple errors. And simple errors, are every easy to make!
If you want a tax professional to be focused and dedicated to take care of your taxation affairs, pop through a message to us today.
Tax Services Australia has been helping Australians with quality, independent and reliable taxation advice since 2001. If you have run into problems with the ATO regarding your residency, or wish to proactively plan for it to seek out the right tax opportunities available in your situation, contact us today.