Latest Update: 5th December 2019 – Unfortunately today the Federal Government passed the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 into law without amendment, resulting in the scrapping of the main residence exemption for non-resident Australian expats.
To read more about this disappointing turn of events click here: Death of the Main Residence Exemption for Australian expats
Original article below:
When you are thinking about moving overseas to become an Australian expat, there are so many things to organise – it’s hard enough navigating a whole new culture and neighbourhood without bringing taxation into the picture.
Feeling bamboozled or like you are forgetting something important? Luckily, we’ve brought together some Australian tax return information for Australian expats moving overseas, to help lower the stress of relocation.
Cancelling your private health insurance
You may think that cancelling your private health insurance when you leave Australia will be the best financial option, but take a closer look:
The Medicare levy surcharge applies to all Australian tax residents with an income above the threshold who lack private patient hospital cover. Remember, just because you might be living and working overseas, doesn’t automatically mean that you are a non-resident for Australian taxation purposes! You may still be an Australian tax resident, and as such, you may still be liable to pay the surcharge even if you are overseas.
If you are a non-resident however, there’s a good chance that eventually you’ll return back to Australia to live at some point in the future. If that’s the case, then cancelling your health insurance is not necessarily a good idea either. The reason is that, for every year that a person (over the age of 30yrs old) is out of the private health insurance system, the government requires private health insurance funds to slug the person an additional 2% on their premium. So, if you’re out of the system and lacking in private health insurance cover for 10 years, once you move back to Australia and take out private health insurance again, your premiums will be 20% (2% times 10yrs) higher than the next person.
Accordingly, cancelling your private health insurance policy whilst living and working overseas may not be wise. Instead, we recommend ‘suspending’ your private health insurance. Most private health insurance funds will allow you to suspend your policy for two years.
Trade Support and Higher Education Loans
As an Australian tax resident, your taxable income is based on your worldwide income, and if your taxable income exceeds the HELP Debt Repayment threshold ($54,879 for 2017, $55,874 for 2018), you’ll be required to make a HELP/TSL debt repayment.
When you move overseas and become a non-resident for Australian taxation purposes, and you have A Trade Support Loan (TSL) or Higher Education Loan Programme (HELP), your obligations for repayment will remain the same. Although your taxable income in your return will only comprise of your Australian sourced income, you’ll be required to report your worldwide income from all sources to the ATO, and your HELP/TSL repayment will be based on that worldwide income and not on your Australian taxable income.
To ensure you are able to meet your repayment requirements, you are also obligated by the government to file an overseas travel notification within 7 days of travel via myGov and update your overseas contact details accordingly.
Your superannuation remains subject to the same rules, whether you live in Australia or not. This means you are unable to access it unless you reach preservation age and retire, or fit the requirements for another condition of release.
Check your super accounts regularly to combine any accounts you no longer need, to avoid unnecessary fees.
Capital gains on your assets
When leaving Australia, your residential property may be considered to be your main residence for capital gains tax (CGT) purposes for up to six years when it is being rented, or for an unlimited time when the property is vacated.
Bear in mind however that recent legislation proposed in the federal government’s 2018/2019 Federal Budget seeks to remove the main residence CGT exemption for non-residents for Australian taxation purposes from 30th June 2019. In short, if a non-resident sells a home in Australia beyond that 30th June 2019, that qualifies as their main residence, they will not receive the main residence exemption, meaning that 100% of the profits on the sale of the property will be subject to tax at non-resident rates.
If you regain your Australian tax residency, and if your property has remained as your main residence throughout the entirety of the period, then you may be entitled to the main residence exemption again on the disposal of your main residence at that point.
For other assets, if your Australian tax residency ceases and you become a non-resident for Australian taxation purposes, for your various assets that are not considered taxable Australian real property (TARP), you will be required to make an election to either:
- pay capital gains tax based on the deemed disposal of those assets (i.e. you’ll be required to pay CGT based on the market value of those assets less the cost, regardless of whether you have actually sold those assets or not); or,
- defer the capital gain to the point that you actually sell those assets, in which case, you’ll pay tax at non-resident rates, (without any discount) on the full amount of the gain.
As you can see, beyond the physical and cultural aspects of moving overseas, there’s a lot of tax issues to consider also, and sadly, these issues are complex and challenging. If you’re thinking of moving overseas, be sure to book an ‘Outbound Expat’ tax consultation with us as our team has an enormous amount of experience and we’ll be able to step you through these issues so that you’ll be able to minimise your taxes, maximise your wealth, and take advantage of all the various tax opportunities that are available whilst minimising the risks!
Get in touch with our Expat Tax Services team today!