Top 10 Australian Expat Tax Mistakes – 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 common errors that are made by Australian expats so we wanted to list out the top 10 Australian expat tax mistakes that we see to give you the best start in making your move overseas a success.
1. Understanding The Change in Tax Status of Your Assets
Assets that you hold in Australia are either classified as Taxable Australian Property (TAP) or Non-Taxable Australian Property (NTAP).
Taxable Australian Property 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
Non-Taxable Australian Property may include:
- Managed Funds
- Exchange Traded Funds
When you move overseas the respective tax legislation that governs these assets changes and so to does how you manage your assets as a Australian expat.
2. Failing to Notify the ATO of Your Move If You Have Student Debt
Since the 1st of July 2017 Australian expats with student debt are now required to update their contact details and submit a overseas travel notification within seven days of leaving Australia as well as report their worldwide income to the Australian Taxation Office if their income exceeds AUD$11,470 and they have outstanding HELP (formerly HECS), VSL or TSL debt.
3. Being Unaware of the Deemed Disposal Rules
When you cease to be a Australian resident for tax purposes the ATO deems that those assets that you hold which are not classified as Taxable Australian Property (shares, managed funds, ETF’s etc) have been disposed of for Capital Gains Tax (CGT) purposes.
You can chose to not have this deemed disposal apply to your non taxable Australian property however there are tax implications on whether you chose to accept or not accept this disposal.
4. Not Clarifying Your Tax Residency Status
Just because you get on a airplane and fly overseas doesn’t mean you automatically qualify as a non-resident for tax purposes.
Also don’t think that because you answered the questions on the ATO’s residency questionnaire that you get a free pass if the answer is non-resident.
The residency rules are convoluted and complicated and 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.
5. Failing to Lodge An Australian Tax Return When You Earn Australian Sourced Income
It is quite amazing how many Australian expats we meet who earn Australian sourced income (for example rent from a property) who either haven’t declared this income or who are many years behind in their annual tax lodgements.
It is imperative that your annual lodgements are up to date and all income is declared. In today’s data driven age the ATO draws information from many sources and if they find out that you are either not declaring or are behind in your returns this could signal a tax audit which no one wants.
6. Thinking That You Can Hide Assets Overseas When You Return to Australia
Quite often Australian expats may collect overseas bank accounts like a kid would collect baseball cards 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 thanks to a global government initiative of sharing data between jurisdictions. This data sharing occurs between the ATO and over 65 countries around the world.
7. Using Your Medicare Card When You Return Briefly
Whether or not you can use your Medicare card as an Australian expat is a often debated topic. 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 topic may become a tax matter is that when you are qualifying yourself as a non-resident for tax purposes you are essentially saying that you are removing your ties to Australia.
By using the Medicare services, which normally only a Australian resident would do, 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.
8. Assuming that a Double Taxation Agreement (DTA) covers everything
Australia has many Double Taxation Agreements (DTA) with countries around the world and each agreement is unique between that particular country and Australia. Where the confusion arises from is if you move to a country that has local and/or state taxes, like the United States for example.
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.
9. Using the Expat Rumour Mill to Manage Your Financial Affairs
Quite often when we ask a Australian expat why they did something or how they came about to making a particular decision the answer often is that a colleague or friend who is also an Australian expat told them it was okay.
The laws and legislation change so often that what may have been correct 2, 3 or 5 years ago is now outdated advice. To protect your financial well being always do your own homework and if you have questions seek professional expat advice.
10. Don’t Take Financial or Tax Advice from Facebook Groups
The advent of the expat Facebook group has been a massive bonus for Australian expats. You can now ask a question and within hours you will have many responses from other expats trying to help.
Whether it has to do with which schools to send your kids to, what is a nice neighborhood to live in or where you can get some Vegemite to replenish your stocks the expat Facebook group is a veritable treasure trove of information.
However, as we referred to in the previous point, any tax or financial information being provided maybe either incorrect or out of date.
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.
If a stranger walked up to you on the street and gave you advice would you act on it? In essence this is exactly the same situation.
Remember, the above list of Australian expat tax mistakes is not exhaustive and there are many more that can and do occur. Always seek professional advice when it comes to managing your financial affairs as a expat.