How does working a for few years in London sound? Or perhaps you have been presented with a career enhancing employment opportunity in the New York? What does this all mean to your investments that you still have in Australia and what things do you need to consider? Let’s review a few issues that may arise before buying that open ended ticket.

First of all let’s work out of you are a resident for tax purposes. There are four tests that you can apply to work out if you are an Australian resident for tax purposes. They are the ‘resides’ test; the domicile test; the 183 day test and the superannuation test. For more information you can speak to us or visit the ATO website here http://bit.ly/n7aGtz.

Now what happens to your own home? You have worked very hard to save to purchase your own home and don’t want to have to incur additional costs of disposing the asset after knowing how much it cost to acquire it in the first place. One option is to turn it into an investment property and start receiving rental income. If the income received from this investment along with all other Australian sourced income exceeds the costs of producing that income (e.g. interest costs, strata, council rates etc) then you will be subject to non – resident tax rates which can be found on the ATO website here http://bit.ly/oLnsFX. The main point of difference is non residents do not receive the tax free threshold and not subject to medicare levy. If your only income is from interest, dividends or royalties you do not need to lodge a tax return so long as the correct withholding tax is applied TIP: notify your bank immediately if you become a non resident to have the correct tax applied. Should your income in the above scenario be less than the expenses incurred then you will be able to carry forward the tax loss to offset any future assessable income. Not a bad position considering many people return to Australia with a wealth of experience and command higher incomes. Please note that your principle place of residence if turned into a investment property will be CGT exempt for up to 6 years with election made at time of disposal so long as you do not purchase another principle place of residence (this applies worldwide).

There may be other capital gains tax (CGT) implications of becoming a non resident even though you have not sold off any assets. How so? When you become a non resident it is deemed that you have disposed of all assets that are not ‘taxable Australian property’ even if you have not sold them.

NOTE: taxable Australian Property is:

-          Real property situated in Australia

-          Some indirect interests in Australian real property and options or rights to acquire an interest in Australian real property

-          A CGT asset used at any time in carrying on a business through permanent establishment in Australia

So generally speaking your home and investment properties do not fall under this. What is caught under this are your shares, options and managed funds. They are deemed to be sold at market value from the date you become a non resident. You have two options here:

1. Pay the tax on the capital gain (remember there is a 50% discount on the gain if held for more than 12 months), if there is a capital loss then this can be carried forward to offset any future capital gains. When you return to Australia then a new cost base will be established for these assets on the day you return to becoming a resident again. Consider this, if you realized a loss and whilst you were away they gain in value over and above what you originally paid for them and you returned to Australia and etablished a new cost base (wouldn’t that be nice?).
2. Elect to defer the CGT event thus broadening the period in which the CGT period can be assessed. However, this will mean that all future gains will generally remain taxable in Australia, including the period when you are a non resident.

Once you have elected one option then it will apply to all the assets, meaning you can’t pick and choose. Everyone’s circumstances will be different and you should speak to our tax team should you be unsure.

Please note that you will not be eligible to claim a tax deduction on your investment loan against your shares as the dividends received are no longer assessable income in Australia and repayment of this debt should be considered before you become a non resident.

What about your super? Just because you away doesn’t meant that your retirement should suffer! As income attributable to employment outside Australia is non-assessable and not counted in the 10% test, a non resident with Australian sourced income such as rental property income may be eligible to claim a tax deduction on personal superannuation contributions. You should also note the residency rules in relation to your Self Managed Super Fund (SMSF). Failure to do so may turn the fund into a non complying fund.

In determining the opportunities and liabilities of being a non resident (including any double tax agreements with foreign countries) you should speak to your tax and investment advisor to determine the best course of action. Getting the right advice now may mean a great deal in the future when you return back to Australia. Speak to the Annoucner team today.

By Michael Sik