Capital gains tax changes for foreign residents

21 July 2017 | Exposure Draft

As part of the 2017-18 Budget, the Government announced that it would be making capital gains tax (CGT) changes for foreign residents.

Main residence exemption

From 9 May 2017 the Government will remove the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore any such capital gain or loss arising upon disposal of a foreign resident’s main residence will need to be recognised.

Principal asset test

From 9 May 2017 the Government will modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property, the principal asset test will apply on an associate inclusive basis.

We urge you to seek professional advice when deciding to sell your property as a non resident.

Witholding tax on disposals made by non residents

New rules for foreign resident capital gains withholding (FRCGW) apply to vendors disposing of certain taxable property under contracts entered into from 1 July 2017. The changes will apply to real property disposals where the contract price is $750,000 and above (previously $2 million) and the FRCGW withholding tax rate will be 12.5% (previously 10%) unless a clearance certificate is obtained from the ATO. The existing threshold and rate will apply for any contracts that are entered into from 1 July 2016 and before 1 July 2017, even if they are not due to settle until after 1 July 2017.

Where a withholding obligation exists, the purchaser must withhold the relevant amount at settlement and pay it to the ATO without delay as a general interest charge may apply to late payments. The purchaser is required to complete an online Purchaser Payment Notification form at which time the purchaser will receive a payment reference number, and a payment slip allowing payment to be made.

The penalty for failing to withhold is equal to the amount that was required to be withheld. An administrative penalty may also be imposed.

Superannuation Contributions – Changes

For contributions made prior to 1 July 2017 you could not claim a deduction if, during the income year, you obtained 10% or more of the total of the following as an employee:

  • your assessable income
  • your reportable fringe benefits
  • your total reportable employer superannuation contributions.

This is the case regardless of whether your employer has paid super on your behalf.

With effect from 1 July 2017 the requirement that you derive less than 10% of your income from employment sources has been abolished and regardless of your employment arrangement you may be able to claim a tax deduction.

Individuals aged 65 to 74 will still need to meet the work test in order to be eligible to make a contribution and claim a tax deduction.

UK Limited Company and Moving to Australia? Read on!

The use of a limited company for the delivery of consulting services in the UK has been commonplace over recent years.

Such companies typically have a single share holder, or share holders that are a husband and wife/de facto couple.

Tax planning for such situations is almost always best done prior to arrival in Australia, particularly if the share holders are the holders of Australian permanent residency visas, or are Australian citizens.

The provisions in Australia that deem distributions made by a liquidator upon a winding up of a limited company to be income in the hands of an Australian resident can defeat the usual capital gains tax/Entrepreneurs Relief planning that is frequently undertaken in the UK.

We have seen circumstances when an individual is already in Australia and wants to access funds in a UK limited company tax efficiently.   While tax savings can be made in this scenario they are usually not as substantial as can be achieved if planning is undertaken before departure from the UK.

If you have a UK limited company with a healthy bank balance and are moving to Australia don’t leave it too late!

Contact GM Tax now to discuss how we can help you ensure that as much as possible finds its way into your personal bank account.

Leaving Australia to work overseas – Watch your tax residency

An increasing number of Australians are deciding to spend a period of time living and working overseas – often in a low tax or no tax location.

However, if you don’t cease to be a tax resident of Australia you may find yourself with an unwanted and avoidable tax bill.

Here’s why.

  • Individuals who are tax residents of Australia are usually taxable in Australia on their worldwide income – whether or not they bring the income back to Australia.
  • By contrast, a person who is not tax resident in Australia is only subject to Australian income tax on income that has an Australian source – usually only rental income.   Note: Bank interest, dividend income, and royalty income is usually not subject to additional tax when received by non-Australian residents, so long as the correct amount of withholding tax has been applied.

This means that if you remain a tax resident of Australia and receive income from an employment in a no tax/low tax jurisdiction you can expect to receive an unwelcome – and possibly avoidable – tax bill from the Australian Taxation Office.

A full understanding of what you need to do to become non resident for Australian tax purposes is therefore key to ensuring you keep as much of your expat salary as possible.

Issues to be considered here are your domicile status for tax purposes, whether you have established a “permanent place of abode” outside Australia, and provisions of any applicable Tax Treaty between Australia and the country in which you will be living and working.

GM Tax advises many individuals who are departing Australia to live and work overseas, with particular reference to their residency status.  Taking such advice at an early stage is good planning – you can’t plan after the event!

Complete the enquiry form on this page if you are an Australian who is planning to spend a period of time living and working overseas – we’ll be pleased to have an initial discussion with you about your situation and how we might help.