Australian Expat 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 relatively common FAQ's which we encounter on a regular basis.
As you probably expect, the answer depends upon a number of factors and the general situation is as follows.
If you remain an Australian tax resident then you will continue to have a requirement to submit a tax return, on the same basis as Australian residents.
If, however, you have broken Australian tax residency then you may have no requirement to submit an Australian tax return unless you continue to earn certain sorts of Australian sourced income, such as rental income, interest income on which 10% withholding tax has not been paid and capital gains.
If you do not earn Australian sourced income, then we advise that your tax agent lodge a "Return Not Necessary" form to the ATO on your behalf. This will satisfy the ATO's requirement for any lodgement, and have the benefit of supporting a claim for non-residency on any later return to Australia. A gap in lodgements can otherwise be problematic for expats on return to Australia, with the ATO pursuing absent returns. Advisors may also indicate that it would be beneficial to lodge "Nil Income" returns depending on specific circumstances.
Under Australian tax rules you cannot currently transfer your Australian superannuation to your UK, or to any other overseas fund with the exception of New Zealand into a KiwiSaver account. Access also typically requires you to reach your preservation age and satisfy a condition of release, which generally means that you are aged 60-65 and retired, before being able to access your super.
One exception is where an individual arrives in Australia on certain temporary work visas – in which case they can access a Departing Australia Superannuation Payment (DASP). This will see them receive a superannuation payout equivalent to their superannuation balance less typical tax of 35% (rising to 65% if they held a working holiday maker visa during their stay) once they have left Australia. Organising a DASP is quite simple, and most of the procedures can be carried out online after leaving Australia.
Note that the UK is one location where you can transfer any accrued pension funds to your Australian superannuation fund with little or no tax applicable if you meet certain requirements. Presently, there are two substantial requirements - firstly that the receiving fund is a Qualifying Registered Overseas Pension Scheme (QROPS) and secondly, as a consequence of changes made in May 2015, you must be aged 55 or older. Additionally, if you are a resident of Australia looking to retire permanently in the UK, you may be better placed withdrawing all your superannuation whilst in Australia and before becoming resident again the UK - specific, prior tax advice is absolutely recommended in these situations. There are also potential inheritance tax implications for UK tax residents.
As you have been away for more than 2 years and established a home overseas you will probably be regarded as non-resident for Australian tax purposes, although additional information would be needed to confirm your situation. If considered non-resident for the time you were away you would not be taxed on your overseas employment income in Australia. Bank interest or dividends earned in Australia should be automatically subject to withholding tax, on the premise that you have advised your bank or share registrar that you were living overseas, whilst you need to submit an Australian tax return in any year in which you earn rental income.
If any rent producing property was negatively geared (i.e. producing a tax loss) then continuing to submit tax returns would likely be in your best interests; with tax losses capable of being accrued indefinitely and able to offset later capital gains tax, or income tax on your arrival back. You should seek advice from a professional tax adviser regarding your residency status – or you may submit an inquiry through this website and professional advice will be arranged.
You generally have six years from the time you rented out your main residence to sell it without any Australian capital gains tax liability - and in perpetuity if the property is not let out. Therefore, if you had sold the property by December 2015, you would probably have avoided the application of CGT. This exemption applies on the basis that you do not own another family home anywhere else in the world. CGT will apply on a pro-rated basis and you should seek the advice of a professional tax advisor to calculate and advise regarding any liability, and how it might be minimised.
However, note that legislation which passed in December 2019 removed access to the main residence exemption entirely for non-residents from 1 July 2020 - with only some minor exceptions. This discriminatory piece of legislation has adversely affected many expatriates who have retained homes in Australia and no decision to sell Australian property should now be made without prior tax advice. Additionally, as non-residents, any buyer of your property may be required to pay foreign resident capital gains withholding (FRCGW) of 12.5% of the purchase price to the ATO, subject to some exemptions which should be discussed with an adviser.
You also need to note that tax changes implemented in 2012 removed the 50% CGT tax discount for non-residents from that point in time, making it less attractive financially to retain a property in Australia. It may also have been in your best interests to have the property professionally valued at the end of the six-year period and as at May, 2012 to lock in the amount subject to CGT exemption and 50% discount. The UAE does not levy CGT, but for expats living in other countries, such as the US and UK, there may also be a local CGT liability associated with the sale of their Australian house even if subject to a full or partial CGT exemption in Australia.
Because of all these complexities our view is that no expatriate should sell Australian property without specific prior professional tax advice regarding the consequences and to ensure that the process is managed as tax effectively as possible.
When you acquire the investment properties you only need to keep the same sort of records you would keep for an Australian property. In essence, apart from a variety of complexities such as exchange rate conversions, foreign investment properties are now treated in exactly the same fashion, for Australian tax purposes, as domestic investment properties. Note that income from the property will also normally be subject to tax in the US - potentially at both the State and Federal level. You should also seek some professional guidance as to whether the property is best acquired through a limited liability company (LLC) in the US for liability reasons and note that some US lenders will actually require the establishment of an LLC.
Currently, Australia does not have an inheritance tax or death duty. However, special CGT rules apply in situations where the beneficiary of an estate is a non-resident and the executors of the estate should obtain appropriate advice - they are personally liable if the appropriate amount of Australian tax has not been paid by the estate. The re-allocation of estate assets can, in some situations, reduce or eliminate a CGT liability with respect to non-resident beneficiaries if the will has been drafted appropriately.
Even though you are dual citizens, the assumption is made that you are not currently Australian tax residents:
In very general terms, 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 and may be available to use when you next become resident in Australia to offset income tax, or capital gains tax on sale of the property. To determine the net profit or loss for tax purposes the rent is reduced by expenses relating to maintaining and renting the property. These would include the rates, insurance and cost of maintenance; 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 also be deductible. To claim depreciation and building allowance you will however 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 Australia/UK double tax agreement, the UK would give you a credit or offset 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. We can also provide access to an adviser that can provide both UK and Australian tax advice and submit tax returns in both countries, which have different tax years.
Expats looking to purchase investment properties should have regard to land tax in Australia as it relates to absentee landlords.
With respect to the bank accounts, we suggest that you write to your Australian bank(s) and notify them that you are a non-resident of Australia. The Banks will then apply a 10% withholding tax to the interest you earn prospectively. For the previous years, you will need to complete an Australian tax return in respect of each year in which you did not pay withholding tax - and an interest/penalty payment may be applicable.
The lump sum of money transferred from the UK would not usually attract Australian tax but there may be a tax liability in the UK on the sale of any assets converted to cash. You should presume however that you will be approached by the ATO to provide proof in relation to the source of funds remitted to Australia and you need to retain supporting documentation.
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 you will be taxable on your worldwide income in Australia from the date of your arrival. The current tax-free threshold will be pro-rated based on the date of your return from overseas. Be careful that any salary or other payments due to you as a result of service in the UK are made before you become resident again in Australia, or Australian tax may be applicable.
Early withdrawals from 401(k) plans can attract significant tax penalties in the US - effectively being taxed at the marginal tax rate plus a 10% tax penalty prior to age 59.5. 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 green card holder) or accumulated the funds as an Australian working on a business visa in the USA.
However, once you again become an Australian tax resident, Australian tax may apply to the gain in the value of the fund and much turns upon whether the 401(k), or any other pension fund, meets the requirements to be considered a Foreign Superannuation Fund (FSF). There are different sorts of 401(k) with varying procedures around exit, and each case needs to be looked at individually. Similar considerations apply in respect of IRA's, 403(b)'s etc.
Therefore, it is very strongly recommended that Australian expatriates in the US with 401(k), 403(b), IRA and similar US pension funds seek Australian tax advice before returning to Australia. Similarly, if you have already returned to Australia, no withdrawal of a US pension fund should be initiated without prior tax advice focussed on ensuring that any transfer is carried out as tax effectively as possible.
Many articles discussing the life of "digital nomads" provide little if any discussion of the tax implications - but routinely suggest that it is a "tax free" lifestyle outside the orbit of tax authorities. That is not ordinarily true and for Australian expats much will depend on their Australian tax residency status. If an Australian adopts a nomadic international lifestyle and does not become tax resident in another country then they may continue to remain liable for Australian tax on their worldwide income - even leaving open the possibility of double taxation depending on whether the country of residency has a double tax agreement with Australia. Additionally, Australian employers should normally receive specific advice on how to treat remote workers for tax purposes.
We deal with these issues in more detail on our page devoted to international remote working and, as with anything which is dependent on your tax residency, you should seek prior advice from a professional tax adviser regarding your plans and intentions.
For individuals and families looking for some broader information about issues to consider on leaving or returning to Australia see our Expatriate Checklists.
If you would like to arrange professional advice please complete the Inquiry form below providing details and you will be contacted promptly.