How to Reduce Tax and Build Your Wealth Whilst Living Offshore

How to Reduce Tax and Build Your Wealth Whilst Living Offshore

Australian ExpatriatesIf you are living and working overseas there are a number of additional factors you need to be aware of when managing your money.

First and foremost, you may no longer be a tax resident in Australia. Instead, you may have become a tax resident of the country in which you are residing. Becoming a non-resident for tax purposes in Australia gives rise to a number of considerations. For instance, non-residents pay a higher rate of tax (32.5% or more) and are not afforded a tax-free threshold (i.e. tax is payable on the first dollar earned). This, and a range of other considerations discussed below, are particularly relevant if you own income-producing assets in Australia or you are redirecting your surplus employment income back to Australia for investment purposes. Simply put, you must ensure you understand the tax implications of your arrangements.

The extent to which your non-residency for tax purposes affects your financial position will, in part, be determined by whether Australia has a double-taxation agreement (DTA) in place with your new country of residence. Generally, a DTA can ensure you only pay tax on eligible Australian investment income in Australia. Investment income will generally be recognised in your country of residence for taxation purposes too, however, a DTA should enable you to apply a tax credit equal to the amount of tax already been paid in Australia. If a DTA does not exist, eligible investment income in Australia may be taxed in both countries.

Additionally, you should determine whether you are required to submit an Australian tax return whilst working abroad. Whether this is necessary or not generally depends on the investments you own in Australia and the level of income they are producing.

Rental income is assessable for non-residents, so if you maintain an investment property (or have rented out your own home whilst away), you may need to complete a tax return each year.

If you receive unfranked dividends from share investments or interest from cash or fixed interest investments, these amounts are not assessable for non-residents and as such, a tax return may not be required. However, these payments are still taxable so the institution (e.g. bank, share registry) will deduct withholding tax of 10-30% to satisfy the tax liability.

Fully-franked dividends are also not assessable but given the issuing company has already paid tax of 30%, fully-franked dividends are considered to be tax-paid and are not subject to withholding tax.

In most cases, non-residents are still eligible to make contributions to an Australian superannuation fund. Super contributions may even be tax deductible, but this may only be of benefit where you have sufficient assessable income in Australia against which to claim the deduction.

The application of capital gains tax (CGT) is also something you need to consider. From May 2012, non-residents are no longer entitled to the 50% CGT discount where an asset is sold but was owned for 12 months or longer. CGT applies to profits realised on property in Australia, but profits on Australian shares are exempt for non-residents.

In most cases, you will also need to pay tax in your new country of residence. Typically, income tax will be applied to your salary and you’ll be required to submit an annual tax return. Given this, you should investigate what tax planning strategies can be applied to maximise your financial position while abroad. You also should ensure your surplus cashflow is being put to effective use. Assuming you plan to retire in Australia, it is important you continue to increase your asset base in Australia and protect what you have already.

Working as an expatriate gives rise to a number of additional complexities and considerations. Obtaining advice in key areas such as tax planning, investment strategy, superannuation and retirement planning, insurance and estate planning will assist you to maximise your financial position whilst working overseas.


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