Understanding Deemed Acquisitions - A Guide for Returning Australian Expats

As an Australian expat Financial Adviser, I've had the pleasure of helping many of my fellow Aussie expats navigate the often complex world of finance and taxation when returning home.

One of the most critical topics that we often encounter is the concept of deemed acquisitions. This subject might seem a bit daunting at first, but fear not; it's my job to simply the world of Australian expat personal finances. So, let’s get started.

Understanding the Concept of Deemed Acquisitions

In essence, a deemed acquisition is a tax event that occurs when you return from overseas to become an Australian resident for tax purposes. Let's say you're an expat living in Singapore, and you've built a portfolio of shares, ETFs, and managed funds.

Once you decide to return to Australia permanently and become a resident again for tax purposes, your overseas investments are considered, or "deemed," to have been sold and repurchased. This can have significant tax implications.

How Deemed Acquisitions Impact Shares, ETFs, and Managed Funds

Let's take a closer look at how this concept impacts various financial assets, using the example of our hypothetical Aussie expat living in Singapore.

Shares: Say you acquired some shares in a Singaporean company while you were a non-resident. If the value of these shares rises while you're away and you decide to return to Australia, you'll be deemed to have bought these shares at their current market value at the point when you return to Australia. Consequently, you might be liable for capital gains tax (CGT) on the growth in value as well as the dividends from that point forward.

ETFs: Exchange Traded Funds work in a similar way. If you bought units in an ETF while in Singapore and their value has grown, the deemed acquisition will apply in the same manner, and capital gains tax, and income tax on the dividends will both apply going forward.

Managed Funds: With managed funds, the situation can be more complex due to the variety of assets they contain. Each component of the fund might be subject to its own set of rules, but the overarching principle remains: the increase in value from the time you acquired the assets until your return to Australia should not be subject to CGT if you were a tax resident of Singapore. However, when you become a tax resident of Australia again, the capital gains and dividends would become taxable.

Legal Framework for Deemed Acquisitions in Australia

Now, before we cause any undue alarm, it's worth noting that Australia has a generous 50% CGT discount for assets held over 12 months. This means that only half of your capital gains are taxed, which can significantly reduce your potential liability.

Also, there's an exception for real property. If you've bought a property in Singapore to use as your main residence, the deemed acquisition rules won't apply. However, this only extends to your main residence and doesn't include rental or investment properties. It’s important to plan ahead if you do own property in Singapore, or in your country of residence, and you’re looking to return to Australia, as the tax implications could be more complex.

For example, claiming an overseas property as your main residence and benefiting from the Main Residence Exemption in Australia could be possible, overseas rental income could be taxable, and it could also impact your ongoing estate planning. If you’re in this situation, it’s important to seek professional advice here.

Case Studies: Deemed Acquisitions in Practice

To better illustrate how this works, let's consider a couple of scenarios involving Australian expats in Singapore.

Case 1: Sam, a project manager, relocated to Singapore five years ago. He's built a portfolio worth SGD 200,000, comprising of shares, ETFs, and managed funds. On returning to Australia, Sam's portfolio is deemed to be worth AUD 210,000 due to favourable exchange rates. This means that the AUD 210,000 would be his new cost base, and capital gains tax and income tax on dividends could apply going forward.

Case 2: Emma, a consultant, has lived in Singapore for eight years. During her time overseas, she purchased a condominium for SGD 1 million, which she used as her main residence. Today, the property is worth SGD 1.2 million. Since Emma used this as her primary residence, she won't be subject to deemed acquisition rules on this property when she returns to Australia. She will need to consider her future plans for the property, as well as whether she intends to purchase a new home in Australia to become her primary residence for tax purposes.

Essential Steps for Managing Deemed Acquisitions as an Australian Expat

As a financial adviser, my advice to expats considering a return to Australia is to plan ahead. Engage with a financial adviser experienced with expatriate issues, and consider obtaining a market valuation of your overseas assets before you return to Australia. This way, you'll have a clear understanding of your potential tax liability and can make informed decisions about whether to sell or hold your assets.

You can also consider changing ownership structures of your assets while your overseas, as there are many options to consider. These can include such options as:

  • Foreign trusts
  • Superannuation funds
  • Joint or individual direct ownership
  • Foreign or Australian companies
  • Australian trusts
  • Insurance-linked investments

Frequently Asked Questions about Deemed Acquisitions

I get a lot of questions about deemed acquisitions, and I'd like to address a couple of the most common ones here:

"I'm planning to move back to Australia temporarily. Will the deemed acquisition rules apply to me?" - Typically, the rules apply when you become a resident of Australia for tax purposes. If you're unsure about your status, it's wise to seek professional advice.

"I moved to Singapore ten years ago, and I didn't make any new investments while I was there. Will I still be subject to deemed acquisitions?" - If you haven't made any new investments while overseas, and your only assets are those you acquired while an Australian resident, the deemed acquisitions rules won't typically apply.

Conclusion

As a repatriating Australian expat, understanding deemed acquisitions is critical. This isn't just about knowing the rules; it's about making wise decisions to protect your wealth and ensure a smooth transition back home.

 

To Your Financial Success!

Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner 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

To learn more about how we may be able to help you, please contact us:

✆         +65 8282 5702
✉         jarrad.brown@gfcadvice.com
☜         https://singapore.feebasedfinancialadvice.com

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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.

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