Tax planning and investing typically go ‘hand-in-hand’ and when it comes to Australian tax and how this impacts Australian expats, there are many myths that seem to circulate. This week I’ve outlined the most common Australian taxes that could impact your financial strategies as an Australian expat, and included some examples to clearly illustrate exactly how they each work.
One of the many great aspects of being an Australian expat in Singapore, is the significant saving in both income tax rates as well as capital gains tax, however it’s important not to ignore tax entirely and always do your homework. Keep in mind also that tax rules can and often will change over time, so be sure to review the current rules and seek advice when needed
- Non-Resident Australian Income Tax Rates
The income tax rates that apply to personal income are different for Residents and Non-Residents for Australian tax purposes. These differences are outlined in the table below:
As you can see, the key difference between the two rates is that as non-resident Australians for tax purposes, we are not granted any tax-free allowances. It’s important to note here that these rates apply to taxable Australian income, which for most will be items such as rental income from an investment property in Australia.
Example: John is an Australian expat living and working in Singapore. He lived in Sydney and owned his own home, which he decided to rent out when he moved to Singapore. John is a non-resident of Australia for tax purposes having lived and worked in Singapore for 3 years to date and plans to remain abroad for the medium term. John’s property is now positively geared by A$10,000 per year, which means that John will need to pay 32.5% tax on this income, equating to A$3,250 per year.
- Capital Gains Tax Discount
If you are a resident of Australia for tax purposes, the current rules allow you to use the discount method to calculate your capital gain providing the asset has been held for more than 12 months and is owned as an individual, trust or superannuation fund. For an individual, this discount is 50%, which means that if you bought shares and sold them 12 months later, you would only be liable to pay capital gains tax on 50% (half) of the overall gain. This 50% discount also applies to trusts, and superannuation funds receive a discount of 33.33%. This discount applies to investment property in Australia for Australian tax residents also, however it’s important to understand that this discount is not extended to Australian expats.
Prior to the 8th May 2012, both Australian residents and non-residents for tax purposes were extended the capital gains tax discount, however this is no longer the case. This could have a significant impact on your overall tax liability in future and your financial plans, so it’s important to seek professional advice here.
Example: Sally and Christine are two friends who have both decided to buy shares in Apple. Sally is an Australian resident for tax purposes while Christine is non-resident living and working in Singapore. Both purchase the shares in January 2017 for a price of US$117.00 and decide in August, 2018 to sell the shares at US$227.00, for a capital gain of US$110.00 per share. As Sally is a tax resident, she will receive a 50% discount and only be liable to pay tax on US$55.00 of the gain, while Christine, as a non-resident of Australia for tax purposes, will not receive this same discount. Note that Christine would be unlikely to pay tax based on her tax residence of Singapore, so it’s important to consider more than just the CGT discount in these scenarios.
- Foreign Resident Capital Gains Withholding
The rules for taxable Australian property now mean that a foreign resident capital gains withholding amount of 12.5% is required to be paid to the ATO by the buyer of the property while the ATO calculates the true tax liability to be paid. This applies where the value of the property is A$750,000 or more, and where the seller of the Australian property is a non-resident of Australia for tax purposes. Do note that the foreign resident seller can in fact claim a credit for this payment by simply lodging their tax return.
Please also note here that the Foreign Resident Capital Gains Withholding payment is not a separate or additional tax, it is simply the ATO’s way of ensuring that as the seller, you meet your capital gains tax obligations. It’s particularly important here that if you’re upgrading a property or buying and selling at the same time, that the appropriate instructions are put in place with your solicitors to avoid any unnecessary delays in settlement due to the withholding payment.
Example: Luke & Amy are both Australian expats living and working in Singapore, and have recently sold their property in Melbourne for A$1.5M. As they are non-residents of Australia for tax purposes, and the property exceeds the value of A$750,000, the buyer of the property must transfer A$187,500 of the purchase price to the ATO as the Foreign Resident Capital Gains Withholding amount.
- Deemed Disposals
If you decide to leave Australia to live and work in Singapore, for example, and still own managed funds or shares, you can choose whether or not you would like to deem your assets to have been disposed of for Australian CGT purposes. By choosing to carry out the deemed disposal, you would need to pay the CGT as if the shares or funds had actually been sold based on the purchase price or cost of acquisition and the value at the time of carrying out your deemed disposal.
You could also decide not to carry out the deemed disposal, which would result in the assets remaining taxable in Australia and CGT applying to the whole period of ownership. Do note that in some cases this can be carried out retrospectively, whereby you may not have been aware of this option and have already been living and working abroad for some time. It’s important to seek proper advice here and ensure that you’re making the right decision based on your scenario as there is no ‘one-size-fits-all’ approach to deemed disposals.
Example: Barry is an Australian who has decided to move to Singapore for the foreseeable future for work. Barry owns some shares in BHP (ASX.BHP), that he purchased in January, 2017 for A$25.00, and he left Australia in June, 2018, when the share price was A$34.00. As Barry is planning to remain in Singapore for some time, he decides to carry out the deemed disposal and pays tax on the shares. The capital gain is A$9.00 per share for Barry, however as he’s held them for more than 12 months as an Australian resident, he can obtain the 50% discount and only pays tax on A$4.50 of the gain. Any gains in the share value from the point that Barry has left Australia is now free of any CGT liability in Australia as long as he remains a non-resident of Australia for tax purposes.
- Withholding Tax on Dividends and Interest
The other key Australian tax that applies to non-residents of Australia for tax purposes is withholding tax, which is payable on bank interest earned in Australia, as well as any unfranked dividends. The withholding tax rate payable on bank interest earned is 10%, while the tax rate that applies for non-residents on unfranked dividends is 30%, however where there is a Double Tax Agreement (DTA) between Australia and your country of residence, this is typically reduced to 15%, such as is the case with Singapore.
Example: Susan is an Australian expat living and working in Singapore and still holds A$150,000 cash in her Australian bank account earning an annual interest rate of 3.0%, and has $50,000 worth of Sydney Airports (SYD.ASX) shares paying her an unfranked dividend yield of 5.12% per annum. This financial year Susan has earned the following:
- Bank Interest: A$4,500.00 (3% of A$150,000)
- Unfranked Dividends: A$2,560 (5.12% of A$50,000)
Susan is therefore liable to pay A$450 in withholding tax on her bank interest and A$384 on her unfranked dividends. While this may appear burdensome at first glance, it’s important to do your homework and calculate the net returns being generated, as you may find this is still superior to alternatives when the tax is included.
As you can see, just because we may live and work in Singapore as Australian expats, we can’t simply ignore taxes in Australia altogether.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3
Australian Expatriate Group is a division of Global Financial Consultants in Singapore providing specialist advice to Australians living abroad.
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.