Australian Taxation : Frequently asked Questions (FAQ's)

There are common threads to many of the questions asked by Australian expatriates regarding Australian taxation, although personal circumstances differ quite widely. Provided below are a number of common FAQ's which we intend to continually update and expand:

Q: I'm a dual nationality (UK/Australian) citizen usually resident in UK but moving back to Australia mid December 2007 for a temporary work contract until the end of July 2008. What would be my tax status in Australia and would I be liable for tax on income earned on UK investments?
 

A : The main issue is whether you will be a resident of Australia or not for tax purposes. If you came back to Australia in December 2007 with the intention of being here for more than 6 months you will be considered a tax resident of Australia. Therefore your world wide income will be taxed in Australia. Any tax paid overseas can be claimed as a credit against your Australian income tax.

Q : I have recently arrived in the UK from Australia to work for a number of years. I want to know if I can transfer the money in my Australian superannuation fund to a UK pension fund, and if so, whether it is in my interest to do so (ie. are there tax implications to consider?).
 

A : Under Australian tax rules you cannot transfer your Australian superannuation to your UK fund. You need to satisfy a condition of release, which means that you are over 55 -60 and retired, to be able to access your super. An exception is where you arrive in Australia on certain temporary work visa – in which case you can access a Departing Australia Superannuation Payment (DASP).  This will see you receive an amount equivalent to your superannuation balance less tax of 35% - if you are nearing retirement age it may be better to leave the money in superannuation and then access it later.  You should seek professional advice in this regard.

Q : I am an Australian citizen who has lived out of the country completely for the last five years, living in Canada and the US. I have been filing tax returns in my  country of  residence but have not filed a tax return in Australia since I left. I am now returning to Australia at the end of the year and plan to live and work there for a while. What do I do about declaring worldwide income for the time I've been away.
 

A: As you have been away for more than 2 years you will generally be regarded as a non resident of Australia. Therefore, for the time you were away you would not be taxed on your overseas employment income in Australia. However, any income you still earned in Australia, such as bank interest, dividends, rent would still be taxed here. You should seek advice from a professional tax adviser to assist you – or you may submit an inquiry through this website and professional advice will be arranged.

Q : We purchased our property (house) main residence in Melbourne, Australia in October 1994. We departed Australia in December 1999 and have been living in Canada since. We are considering selling the property in the next six months. Would be liable for Capital Gains tax on the sale proceeds?
 

A : You generally have six years from the time you rented out your own house to sell it without any capital gains tax liability. Therefore if you had sold it sell it by December 2005, you would have avoided the application of CGT. This exemption applies on the basis that you do not own another family home anywhere in the world.  CGT will now apply on a pro-rated basis and you seek the advice of a professional tax advisor to calculate and advise regarding any liability, and how it might be minimised.

Q : My husband and I expect to purchase a rental property in the US. We are both Australian Citizens and are residing in Australia. Are we required to keep any other records for our overseas investments - outside of those we would normally keep for an investment property here in Australia. Also is it sufficient to notify the tax office of the income from these properties at tax time or do we need to notify them (or any other government department) sooner?
 

A: When you acquire the investment properties you only need to keep the same sort of records for an Australian property. However there are a number of issues you should be aware of:

• With the offshore properties you need to separate out the interest paid on a loan as it will be deductible. The other expenses of owning the properties eg rates, insurance repairs etc., must be measured against the rental income. If the result is a loss that loss is “quarantined”and can only be offset against future income from the property. If it is a profit then the profit is bought to account as income in Australian tax return.
• If you own assets in the USA and you pass away, the properties may be subject to estate duty in the USA

Q : Do Australians have to pay inheritance tax? If so how much is it and what is the nil rate band?

A: Currently, Australia does not have an inheritance tax or death duty.

Q : My spouse and I are dual UK and Australian citizens who are considering investing in a home in Australia which we would rent out on a long-term rental or lease. We want to know how this would affect both our UK and Australian tax liability. In particular, we want to be sure we wouldn't be taxed twice on the same income and we want to know how depreciation would work in Australia, assuming that the income from the property would be taxed once, here in Australia.
 

A:  Even though you are dual citizens, the assumption is made that you are not Australian Tax residents:

If you buy a rental property in Australia then the net profit is taxable in Australia. If the result is a loss then the loss is carried forward in Australia. To determine the net profit or loss the rent is reduced by expenses relating to the property. These would include the rates, insurance, repairs etc. Interest on a bank loan to buy the property would also be deductible. Depreciation on the chattels and building allowance on the cost of construction would be deductible. To claim depreciation and building allowance, you will need a qualified valuer to value the property and chattels to be able to calculate the depreciation.

If there is a profit in Australia, then tax would be payable here and in the UK. However under the double tax agreement the UK would give you a credit for the tax paid in Australia against your UK tax liability. We would recommend that you check the UK tax implications with your UK advisor.

Q : I have been living overseas since March 2006 and I have not put an income tax return in since June 2006. I have bank accounts in Australia in which I have not been paying tax on the interest and have just realised that I am meant to. I also plan on sending a lump sum home and wanted to know what sort of tax I will be required to pay on this. I would like to sort it all out as I plan on returning to Australia within the next year. Also, if I return to Australia in the middle of a financial year, do I have to pay tax on my earnings from the UK?
 

A : In respect of the bank accounts, we suggest that you write to the Bank and notify them that you are a non resident of Australia. The Banks will then withhold the 10% withholding tax from the interest you earn. For the previous years, you can make a cheque payable to the Tax Office for 10% of the interest earned as the back payment of the tax due. If you  require any help in doing this we are happy to arrange professional assistance.

The lump sum of money you send into Australia will generally not be taxable as you are a non resident of Australia but there may be a tax liability in the UK on the sale of the assets converted to cash.

 If you return to Australia part way through the year, the issue is whether you are returning for good or only for a holiday? If you are returning for good then your world wide income after you return will be taxed in Australia. Also the current tax free threshold of $6,000 will be pro rated

Q: I am relocating from Los Angeles to Sydney in early October. I am inquiring about the possibility of moving a 401k from the USA to my Australia superannuation fund.
 

A: As a general rule, your 401k plan proceeds can be rolled over to an Australian superannuation fund, but the major problem is that (early) withdrawals from  401K plans may attract significant tax penalties in the US.  These withdrawal costs can sometimes be avoided entirely, or reduced considerably, but it depends on a number of individual factors – such as whether you are an American citizen (or greencard holder) or an Australian working on a business visa in the USA.

You need to seek professional advice regarding any transfer and to provide details of the particular 401K fund. There are different sorts of 401K with varying procedures around exit, and each case needs to be looked at individually.  Also there is the possibility that Australia’s foreign investment funds (FIF) provisions will adversely tax balances held in 401k’s, or more particularly, IRA’s.
 

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