Top 10 Australian Expat Tax Mistakes You Need to Avoid
Managing your tax when you’re an Australian resident is difficult enough at the best of times, let alone when you move overseas and become a Australian expat for the first time. We often see Australian expats make common errors. So, we want to list the top 10 Australian expat tax mistakes to give you the best start in making your overseas move a success.
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Understanding the Change in Tax Status of Your Assets as an Australian Expat
When you move overseas, the tax classification of your assets in Australia changes. They are:
Taxable Australian Property (TAP) – This may include
- a direct interest in real property that is located in Australia e.g. apartment, house etc.,
- a mining, quarrying or prospecting right,
- a Capital Gains Tax (CGT) asset that you have used at any time in carrying on a business in Australia,
- an indirect interest in Australian real property, or
Non-Taxable Australian Property (NTAP), which may include
- shares,
- managed funds,
- exchange traded funds, or
- LIC’s etc.
As an Australian expat, it’s important to understand how the tax treatment of these assets changes when you leave Australia. Mismanaging this could lead to unexpected tax obligations.
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Failing to Notify the ATO of Your Move If You Have Student Debt
Since July 1, 2017, Australian expats with student debt (HELP, VSL, or TSL) are required to notify the Australian Taxation Office (ATO) within seven days of leaving Australia. You must also report your worldwide income if it exceeds AUD $11,470. Failing to do so can result in penalties and interest on your debt.
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Being Unaware of the Deemed Disposal Rules
When you stop being an Australian resident for tax purposes, the ATO deems certain assets that are not classified as Taxable Australian Property (TAP) (such as shares and managed funds) to have been disposed of for Capital Gains Tax (CGT) purposes. You can choose to defer the deemed disposal, but there are tax implications, so understanding the rules is essential for managing your assets as an Australian expat.
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Not Clarifying Your Tax Residency Status as an Australian Expat
Just because you’ve moved overseas does not automatically make you a qualify as a non-resident for tax purposes. The ATO’s residency rules are complex, and it’s not enough to simply answer the ATO’s residency questionnaire. Many expats face tax issues because they assumed they were non-residents when, in fact, they were still considered residents. The Australian court system regularly has cases involving the ATO arguing that an Australian expat was a resident for tax purposes when the expat thought otherwise. See my recent article regarding a Dubai-based Australian.
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Failing to Lodge an Australian Tax Return When You Earn Australian Sourced Income
We meet many Australian expats who earn Australian sourced income (e.g., rental income) who either haven’t declared this or fail to lodge tax returns. It’s essential that all income is declared, even if it’s earned from overseas. The ATO uses a wide range of data sources, and failing to declare income could trigger an audit, resulting in penalties, which no one wants.
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Thinking You Can Hide Assets Overseas When Returning to Australia as an Australian Expat
Quite often Australian expats may collect many overseas bank accounts, and it is easy to forget where you may have some money parked.
However, with the introduction of the Common Reporting Standard (CRS) it is important that any offshore assets are declared as part of your annual tax return when you return to Australia.
As we recently posted, the ATO now has data on over 1.6 million bank accounts overseas due to a global government initiative of sharing data between jurisdictions. This data sharing occurs between the ATO and over 85 countries around the world.
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Using Your Medicare Card When You Visit: A Common Australian Expat Tax Mistake!
Whether or not you can use your Medicare card as an Australian expat is often debated. Quite often the confusion centres around the expiry date on your card and the assumption that you may use it until the card expires.
While this is not specifically a tax subject it may have tax implications. The reason being that when you move overseas and become a non-resident for tax purposes, you are no longer paying the Medicare Levy nor the Medicare Levy Surcharge.
Where this may become a tax matter is when you are qualifying yourself as a non-resident for tax purposes. You are, therefore, saying that you are removing your ties to Australia.
By using the Medicare services, which normally only an Australian resident would use, you are showing that you still have a connection to Australia. If you combine this with other mitigating factors that also show ties to Australia, then you may leave yourself open to the impression that you are a resident for tax purposes, who is residing overseas.
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Assuming a Double Taxation Agreement (DTA) Covers Everything for Australian Expats
Australia has many Double Taxation Agreements (DTA) with countries around the world. Each agreement is unique between that particular country and Australia. Confusion may arise for expats if they move to a country with local and/or state taxes, such as the United States.
The DTA only extends to the federal level and if you move to a particular state in a country that charges taxes, then the DTA may not provide protection. It always pays to do your research when you are investigating new locations to see if local and state taxes may apply to you.
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Using the Expat Rumour Mill to Manage Your Financial Affairs
Quite often, when we ask an Australian expat why they did something or how they came about to make a particular decision, the answer often is that a colleague or friend who is also an Australian expat told them it was okay. Tax laws and regulations change frequently. What worked a few years ago may no longer be valid. Always seek professional expat advice to ensure that you’re staying compliant and managing your finances correctly.
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Don’t Take Financial or Tax Advice from Facebook Groups
While Facebook expat groups can offer valuable personal experiences and advice, they should not be relied upon for financial or tax advice. As previously discussed, Tax laws are complex, and advice from non-experts can be outdated or incorrect. Always consult a professional before making financial or tax decisions that could impact your future.
Always do your own homework and ensure that what is being provided is correct. Everyone is trying to help each other, but remember that these are your financial affairs.
Conclusion: Protect Your Finances as an Australian Expat
The top 10 Australian expat tax mistakes outlined above highlight the complexity of managing taxes as an expat. To avoid unnecessary complications, seek professional advice on managing your taxes, assets, and financial affairs abroad. With the right guidance, you can ensure that your transition overseas is as smooth as possible, and your finances remain secure.
To learn more, check out Atlas Wealth Groups’ podcast: Expat Chat