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The tricky question of expat tax
Max Newnham
September 8, 2010
For many years Australian workers have been moving permanently overseas to live and work. They may still be Australian citizens, but for tax purposes they are treated as non-residents.
Q. I am soon to relocate to a small undeveloped country with no tax agreement with Australia. This will be where my home is and I will retain no residence in Australia. I intend to maintain my online share trading account in Australia and continue trading in shares. Any capital gain I might make will have to be declared as income in my new country of residence and subject to tax. Will I also have to pay tax in Australia on these gains?
A. How you will be treated tax-wise on your Australian-sourced income will depend on the local tax laws. You should seek professional advice from someone there who can advise you on how the Australian income and tax paid is assessed.
As a non-resident any Australian income you earn will have tax paid on it with few exceptions. One of those exceptions is fully franked dividend income, which you can receive and not pay any Australian tax. If you are earning interest income you should let the financial institution know you are a non-resident as it must deduct 10 per cent withholding tax.
If you make capital gains on the sale of any of your shareholdings you will need to pay capital gains tax in Australia. Depending on the local tax laws you may get a credit for the Australian tax you pay to offset any local tax levied.
Q. I am an Australian citizen who has been residing and working in the Caribbean for the past 15 years. I need to go back home to Australia for an unspecified time to look after a relative and will also have to take up work while there. I have an Australian tax file number but have declared myself a non-resident for income tax purposes. Where do I stand with regards to tax in Australia, if my main place of abode is declared as here in Barbados, but I still need to work in Australia?
A. As a non-resident for Australian tax purposes any income you earn while here looking after your relative will be taxable. The tax rates for non-residents are 29 per cent on the first $37,000 you earn, after which you pay tax at normal resident marginal rates. For example on a salary of $60,000 you would pay tax of $10,730 on the $37,000 (at a rate of 29 per cent), then pay 30 per cent tax on the remaining $23,000, which equals a tax payment of $6,900.
Q. I was wondering how I use the tax losses I have accumulated while living overseas. Can the losses be used to offset capital gains tax on the selling of an investment property and if so how is this calculated?
A. It sounds like you have a rental property in Australia that you are making losses on. This should mean you lodge an Australian tax return that shows these losses and records the fact you have an increasing carried forward loss. If this is the case you will be able to offset the accumulated losses against the capital gain you make.
For example if the total of the losses was $25,000 when you sell the property, and you make a capital gain of $100,000, after the 50 per cent discount the assessable gain would be $50,000. This $50,000 is then reduced by the accumulated losses of $25,000 leaving net taxable income of $25,000. As a non-resident all of this is taxed at the 29 per cent rate.
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