There are close to 40,000 Australian citizens and permanent residents registered with the Department of Foreign Affairs and Trade (DFAT) stranded overseas trying to return home to Australia.
India and the UK have the most individuals registered to return home, followed by the US, the Philippines and Thailand.
With so many expats heading back to Australia due to the global COVID-19 pandemic, those who were working abroad could face a sizeable tax bill once they return home.
To avoid having to pay more tax than you have to or jeopardising the security of your assets, we highly recommend understanding how your money/investments will be treated on home soil, and reviewing and structuring tax liabilities, property, investment and superannuation.
Ensure that all salary entitlements including bonuses, holiday and other entitlements are received before returning to Australia as a resident or these payments may be taxable in Australia. Similarly where you are holding share and stock option entitlements you should investigate the tax implications that these may have in Australia.
At the time of becoming a resident, cash in an account overseas is not taxable. However, interest earned on savings in a foreign bank account is taxable from the date you become an Australian resident.
Those returning to Australia should consider rolling their money into an Australian superannuation fund as soon as possible because transfers made within six months of gaining residency are generally tax-free.
After that, contributions are taxed at varying rates depending on how long the member has been back in the country.
Providing the member is under 65, individuals can bring forward three years of contributions – capped at $100k a year; or $300k total. These contributions will generally be considered to be the after-tax variety.
However, repatriating super assets can be complicated as not all super funds accept overseas super rollovers. Also, an assessment of any income or capital gains earnings will need to be made as well as any overseas benefit that has accrued since the investor became an Australian income tax resident as they could all trigger a tax liability.
It’s not as easy as just depositing funds into an Australian share scheme – Obtaining expert advice before moving any funds is highly recommended.
Shares and investments purchased overseas become taxable upon return – this includes those listed on the Australian Securities Exchange.
If the shares are sold later, the market value at the date of residency becomes the cost base. That means gains accumulated before arriving will generally be tax-free.
Dividends paid after residency are also taxable but you should be able to apply a tax offset for any foreign tax already paid on them.
If you have a private company overseas which will continue to operate then you should also seek advice on the tax implications that this may have when you return to Australia.
Returning to Australia and purchasing a property is expensive – particularly at this point in time as we are experiencing an increase in property value.
Housing values are rising across every capital city and state region – February 2021 saw house prices jump 2.1%, the largest national monthly rise since August 2003.
Owners of Australian Property
Tax losses accumulated while out of the country can be offset against Australian income.
Rent on income must continue to be declared on the Australian tax return, even if non-resident. Costs such as interest on mortgages, rates, insurances, land tax, agent’s fees and repairs can also be deducted.
If your property is negatively geared, when the taxpayer becomes resident again the losses roll forward against Australian income.
If individuals are planning on selling their former family home in Australia, they might be better off returning to the country before selling. At the time of property disposal, foreign residents for tax purposes will not qualify for the capital gains tax main residence exemption. Where the property has both been a main residence and a rental property then the capital gains tax calculations can also become quite complicated and advice may be needed.
Owners of Foreign Property
Property overseas will need to be valued in that country once the individual has returned to Australia. The valuation will then be converted into Australian dollars and will be used as a guide to the capital gains tax liabilities.
If the individual is renting their property in another country, rental income will need to be declared from the date the expat becomes resident again. Expenses including interest on foreign mortgages can be deducted from this date.
Caution must be taken when switching foreign currency into Australian dollars.
When the Aussie dollar is strong and likely to strengthen, it has the potential to reduce the value of overseas holdings.
After an individual returns to Australia, foreign currency gains/losses can trigger tax consequences. A weakened Aussie dollar will produce a taxable foreign exchange gain while a strengthening Aussie dollar will lead to tax deductible losses.
If an individual plans to live in Australia, they can set up an Australian dollar account before their arrival without any tax consequences. However, any appreciation of the currency could have tax implications in the country of origin.
If an individual has a life insurance policy overseas, they will need to check on how returning to Australia will affect their policy. Particularly for older policyholders who might find it difficult to find a replacement insurer at a comparable rate.
How can Walsh Accountants help you?
If you’re an expat looking to return to Australia, or have any questions as to how to treat or structure your foreign income, assets, or superannuation, the team at Walsh Accountants can help.
Our Associate Director and Tax Specialist Ian McGinniss assists individuals and business owners with complex tax matters including treatment and structuring of foreign income and assets.
Please contact our office for a complimentary discussion based on your personal circumstances.