Australian Expats face unique financial challenges, and here’s a real-life scenario to illustrate: Imagine an Australian residing in California. They catch wind of booming property prices back home and stories of friends and family reaping handsome rewards from their real estate investments.
Having previously invested in Australian property, they confidently use their savings in Australia to buy another investment property.
However, they’re unaware of a crucial change. In 2012, due to a surge in property purchases by foreigners, the ATO scrapped the 50% CGT exemption on taxable Australian property for non-tax residents.
This means the entire gain is taxable at the individual marginal tax rates.
This change doesn’t just affect foreigners but also Australian citizens who aren’t residents for tax purposes. The result? A hefty Australian capital gains tax ranging from 32.5% to 45% on the property’s appreciation during their non-residency.
But there’s another twist.
Let’s say our Californian-based Aussie decides to sell this property while still living in California. While Australia would levy the capital gains tax, being a US resident means they’d also be subject to US federal taxes.
Thankfully, the US-Australian double tax treaty allows for offsetting the capital gains taxes paid in Australia against the US dues.
BUT, there’s a catch with California.
California isn’t part of the US-Australian double tax treaty. So, Californian state taxes come on top of the Australian ones. In extreme cases, this could mean our Aussie ends up paying nearly 60% tax on their property’s capital gain.
Sadly, this isn’t just a hypothetical. We’ve seen such scenarios unfold.
The good news? There are smarter ways for Australian expats to grow their wealth without being hit by exorbitant taxes. When you are a Australian expats whilst there will be financial challenges the opportunities that living overseas offers outweighs the negatives as long as you adapt the way that you manage your finances.
Seeking expert advice early on can steer you clear of such tax pitfalls.