With so many Australian creatives heading overseas to develop their careers, we’re often asked for international tax advice. Here is a general overview of what needs to be considered.
Find out what you need to know before you go.
One of the biggest mistakes creatives make when they work overseas is not seeking the right advice to avoid double taxation and fines.
Our motto is: Find out what you need to know before you go. But it’s often not the case. People will just follow the dream and think they don’t need to do a tax return anymore. Then they start getting messages alerting them that the ATO is chasing them and realise they have a hot mess to sort out.’
Most people’s “to-do” list when they are planning a trip overseas will likely include items such as travel insurance, phone chargers or taking photos of their passport — but probably the last thing on anyone’s minds will be their likely tax situation before, during or after that trip-of-a-lifetime.
However a few simple considerations, taken in the context of your personal circumstances, may end up making quite a difference to your final fiscal outcome.
Lodging an Australian tax return for overseas income
Generally you will remain an Australian resident for tax purposes if you’re overseas temporarily and you don’t set up a permanent home in another country. There’s usually nothing stopping you from working overseas, but you must lodge an Australian tax return and declare your “worldwide” income, even if tax was taken out in the country where you earned the income (there will most likely be a tax offset to take care of any doubled-up tax).
If you are travelling overseas, or working and living abroad on a temporary basis, you may still be classified as an Australian tax resident and thus need to declare all overseas income. If you are relocating permanently, then you need to tie up your loose ends with the ATO so you aren’t pursued for not lodging tax returns each year.
While overseas, you can seek the assistance of your tax agent (accountant) to manage all of your ATO affairs. At Electra Frost Accounting, we work online and meet our overseas clients on video at flexible times.
You can also manage your tax obligations with MyGov. Note, however, that it is advisable to log in to your myGov account and turn off the myGov security code feature before you lose access to your Australian mobile number. If you have access to your number overseas, you can keep this feature turned on, or you may opt out of SMS notifications – see here.
Am I a tax resident?
The rules around tax residency are based in Case Law and are very dependent on individual tax circumstances and demonstrable intentions. Recent cases have indicated that the ATO may begin to regard some Australians in temporary accommodation as satisfying the requirements of ceasing residency but there is still a lot of grey area.
Of course, it is in our government’s interests to keep you as an Australian tax paying resident if you are working in a low-tax or no-tax jurisdiction. Declaring yourself as a non-resident should be done with care. If the ATO disagree with your self-assessment, it can result in extra tax payable and penalties.
The ATO have an Residency Decision Tool on their website. However, to be sure of your position and to be able to defend it to the ATO later if needed, it’s best to seek professional advice and representation. Getting the date right can be tricky. The date you become a non-resident may actually be some time after you have left Australia.
Some CGT considerations
If you leave your home in Australia temporarily and rent it out, you can continue to treat it as your main residence for up to six years for capital gains tax (CGT) purposes. If you don’t rent out your vacated home, you can treat it as your main residence for an unlimited period.
If you cease to be an Australian resident and decide to sell your home in Australia you may be liable to CGT.
If you cease to be an Australian resident while overseas, the ATO may deem some of your assets (generally those not considered “taxable Australian property”) to have been disposed of for CGT purposes, which may mean you become liable to pay CGT.
You can choose not to have this deemed disposal apply. But if you subsequently dispose of the asset some time later, the capitals gains tax payable as a non-resident may be disadvantageous.
If you are an Australian citizen or permanent resident heading overseas, your super remains subject to the same rules, even if you are leaving Australia permanently. This means you cannot access your super until you reach preservation age and retire, or satisfy another condition of release.
If you have a small amount saved for retirement that you want to keep with your super fund, contact your super fund and tell them. This will prevent it from being transferred to the ATO as “unclaimed” super.
If you are a trustee of a self-managed super fund (SMSF) and you intend to travel overseas for an extended period, check before you leave that your fund will continue to meet the definition of an Australian super fund. Generally there are certain residency conditions for an SMSF, which include that:
- it was established here and at least one asset of the fund is located in Australia
- central management and control is ordinarily in Australia
- its active members hold at least 50% of the fund’s assets.
If your SMSF fails the residency test, it could be advisable to roll over your funds to a resident regulated super fund and wind up the SMSF — as otherwise the SMSF will become non-complying. Professional advice in these situations is recommended.
The Medicare levy surcharge applies to Australian residents who have incomes above the surcharge thresholds and do not have an appropriate level of private patient hospital cover. So if you cancel your private health insurance while travelling overseas, you may be liable for the Medicare levy surcharge if your income exceeds the relevant threshold.
A good idea may be to contact your health fund to work out the amount of premium you expect to save by cancelling or suspending your cover, and then compare it to the surcharge you may have to pay.
You and all your family dependants must have private patient hospital cover to avoid paying the surcharge. Cancelling or suspending cover for yourself will mean you and your spouse may each still be liable for the surcharge if your combined income for the purposes of the surcharge exceeds the family surcharge threshold.
Remember, travel insurance is not private patient hospital cover for the purposes of the Medicare levy surcharge. Private patient hospital cover does not include cover provided by an overseas fund.
(Also note that although any foreign employment income may be exempt from Australian tax, the ATO will still take it into account when it determines your taxable income for the purposes of the Medicare levy surcharge.)
If you have moved overseas and have a Higher Education Loan Programme (HELP), VET Student Loan (VSL) or Trade Support Loan (TSL) debt, you will have the same repayment obligations as those who live in Australia. This applies even if you already live or intend to move overseas for a total of more than six months in any 12-month period.
You will need to update your contact details using the ATO’s online services via myGov. You will also need to advise the ATO of your worldwide income, and make compulsory repayments or pay an overseas levy towards your debt if you earn over the minimum repayment threshold.
If you have a Student Financial Supplement Scheme (SFSS), Student Start-up Loan (SSL) or ABSTUDY Student Start-up Loan (ABSTUDY SSL) debt and go overseas, the ATO will continue to maintain your loan account. Your debt will not be waived and the amount outstanding will continue to be indexed each year until you have paid off your debt. You can still make voluntary repayments when you are overseas.
This information is only general in nature. For further advice regarding your TAX RESIDENCY STATUS AND OVERSEAS TAX OBLIGATIONS, please do not hesitate to contact us.