There are currently 7.7 million Australian residents born overseas – almost a third of the total population. By 2030, PWC estimates that Australian expatriates residing overseas could total 1.35 million and many will eventually migrate back to Australia.

There are many of us that have assets overseas or will come to acquire assets overseas. This could be investments, property, savings or inheritances that attract tax across two jurisdictions. It is important to understand the tax implications of holding assets in multiple countries.

Alison Wood is a partner at Pitcher Partners and has been an expatriate tax specialist for over 30 years. Importantly, she has made the move herself from the United Kingdom to Australia, having personal experience with taxation of assets in numerous countries.

Like all aspects of financial and tax planning, personal circumstances will dictate tax outcomes. Expatriate tax is particularly complex. It depends on the relevant countries, the type of visa or residency, time periods and fluctuations in foreign currency. Alison mentions that FX movements can result in a capital gain in pound sterling on an asset disposal, but a capital loss in AUD or vice versa.

She answered some of the most common questions that we receive about expatriate tax and overseas investments.

The most common mistake that expats and migrants make

Alison responds that resoundingly, the most common mistake is assuming that because they have paid tax in one jurisdiction, they do not need to pay tax in the other jurisdiction. She says that this misconception is grounded in the assumption that a double tax treaty absolves you from reporting your income.

Australia does have double tax treaties with many countries. Alison explains that it is typically still a requirement to report all of your income in Australia, although a treaty may either exempt the income or dictate which jurisdiction gets the first taxing rights to the income and at what rate.

For example, a US citizen or green card holder is always taxed on their worldwide income regardless of where they are living. If they have US-sourced income – such as stocks, managed funds, deposits or rental income, this income may have to be reported in Australia and the US dependent on their Australian tax status. If they have Australian-sourced income and they are for example, a permanent resident or citizen, it must be reported in Australia and the US.

Typically, the US will get first taxing rights on US sourced income. Australia will get first taxing rights on Australian sourced income.

A non-resident may not have to file an Australian tax return if they have no Australian sourced income subject to the non-resident tax rates and withholding tax is applied correctly at source. As an example, where the Australian bank that the deposit is with is informed that the holder is a non-resident for tax purposes, the bank will withhold 10% tax from income earned. This 10% tax is a full and final tax for Australian tax purposes. The income therefore, does not need to be reported in Australia. It is also taken as a credit for tax paid on the US tax return.

If the tax rate in the US is 30%, you will receive a 10% credit and 20% tax will have to be paid to the IRS.

Insurances

Another common misconception is that private health insurance will transfer automatically or can be used in other countries. Even if your health fund offers global coverage, it may not be sufficient to avoid the Medical Levy Surcharge in Australia.

It is recommended for all insurances, that you review the policy to understand whether it is still valid after a move. Otherwise, find a new policy in the relevant jurisdiction. Alison presses that if you’re not in the country when the worst happens, health insurance is important and can save you a lot of heartache.

For those coming into Australia that are liable for the Medicare levy, you’re only exempt from the levy from the date a private health insurance policy has commenced. It is one of the first things that Alison communicates to her clients – if you’re coming in as a permanent resident or from a country where there is a reciprocal healthcare agreement, you are entitled to Medicare, or a degree of cover under Medicare. Ensure that you get private health insurance with an Australian fund that offers you appropriate coverage given your circumstances.

What happens to super when I arrive in or depart from Australia?

Again, this question is dependent on a variety of factors, especially your visa status.
Short term visa holders are subject to Departing Australian Superannuation Payment (DASP) tax when they leave the country and their visa is cancelled. Superannuation funds can be accessed at a rate of 35%, making it an effective rate of almost 47% for the privilege of accessing it early.

Australian citizens and residents are not able to access their superannuation when they leave the country. They must wait until they reach a condition of release.

Once a condition of release is met, Australians have an extremely attractive source of income, with up to $1.7 million of retirement savings able to be accessed and earn income in a tax-free environment. If an individual were to access these funds whilst living overseas, depending on the jurisdiction, they may face taxation on this income stream.

Alison stresses that for many expats that are coming into Australia the super environment is extremely attractive. Many try to transfer existing savings allocated for retirement into super to take advantage of the tax-free status in retirement.

The process of transferring retirement savings from one jurisdiction to another is not considered a rollover in the same way it would be to transfer from for example Rest Super to Australian Super. A transfer from a non-Australian retirement vehicle is considered a non-concessional contribution and counts towards non-concessional caps that are in place.

The individual may also be subject to tax in the source jurisdiction. For example, if there is a withdrawal from a fund in the US, penalty taxes may have to be paid in the US to move it over to Australia dependent on a number of factors, including the taxpayers age at time of withdrawal.

From the UK, individuals are required to find a compliant fund in Australia, called a Recognised Overseas Pension Scheme for UK tax purposes. Some of these funds have regular reporting obligations back to HM Revenue and Customs in the UK.

A tip from Alison: Many investors keep insurances on their superannuation account after they have left the country. She says that most insurance policies require the policy holder to be living in Australia to be eligible to make a claim.

Inheritances

Many migrants leave their families behind in other countries. This means that inheritances are an eventuality.

Inheritance tax, gift tax, death duties – it’s known by many names. Australia currently has no inheritance tax or gift tax. In the case of a receipt of an inheritance from overseas, the foreign jurisdiction will apply death duties/inheritance taxes typically before any distribution can be made to the beneficiary. Your inheritance/the asset is received by you at market value typically at date of death and you are taxed in Australia on income generated by the asset from that point in time. The cash that you receive must be converted to Australian dollars to be reported.

The process of reporting inheritances, especially over $250,000 AUD can require detailed monitoring. An inheritance over the $250,000 AUD amount requires to be compliance under taxation of financial arrangements. Movement on cash must be reported, with foreign exchange taken into account. This must be done for every transaction on the account, regardless of whether the funds are converted into AUD.

Receiving an inheritance may lead to you holding non-Australian dollars – where you hold accumulative amount of foreign currency in excess of the equivalent of A$250,000 you may be liable to tax in Australia under the Taxation of Financial Arrangements Rules for Foreign Currency movements. This is a complex area of tax law and advice should be taken.

How to find a tax specialist for expat and migrants

Alison recommends finding a tax specialist that is part of an international network. This means that they can leverage relationships and specialities in different tax codes to ensure that your tax is filed in both or multiple jurisdictions in the most efficient way possible.
Although not necessary, she says it does help to find a tax specialist that has experience with moving across borders.

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