Federal Budget Report for 2012 – Australian Expat Edition

The Federal Budget Report for 2012 – Australian Expat Edition is in its first year. The 2012/13 Budget was framed against an intriguing background; a Government in trouble and a two speed economy, both desperately seeking traction. In the past two budgets, the Labor government made a commitment to return to surplus in 2012/13 so it is no surprise at all that the Budget projects a wafer thin surplus of $1.5 billion.

There have been some changes that will affect Australian expats who are considered non-residents for tax purposes. A summary of these changes are as follows:

• Removal of Capital Gains Tax discount for non residents – the 50% capital gains tax (CGT) discount will no longer be available for non-residents on capitals gains accrued on taxable Australian property such as real estate and mining assets after 7:30pm on the 8th of May 2012. The CGT discount will remain available for capital gains accrued prior to this time where non-residents choose to obtain market valuations of assets as at the 8th of May 2012.
• Changes to the tax rates for non-residents – the personal income tax rates and thresholds that apply to non-residents’ Australian income will be adjusted. From the 1st of July 2012, the first two marginal tax rate thresholds will be merged into a single threshold. The marginal rate for this threshold will align with the second marginal tax rate for residents (32.5%) and will apply to all taxable income below $80,000. A non-resident with an Australian taxable income of $80,000 is currently subject to tax of $23,630. This will increase to $26,000 ($80,000 x 32.5%) from the 1st of July 2012. From the 1st of July 2015, the same marginal rate will rise from 32.5% to 33% (again aligning it with the second marginal rate for residents at that time).
• Managed Investment Trust withholding tax rate increase – managed investment trusts that make fund payments to an address outside Australia are required to pay withholding tax to the Tax Office. The rate of withholding tax is 30%, but this rate is reduced if the country has an exchange of information agreement with Australia, in which case the rate is currently reduced to 7.5%. This reduced rate will increase to 15% from the 1st of July 2012.

With the proposed changes it is recommended that you seek financial and/or tax advice to determine how any of the above changes may affect your personal circumstances.