Tax Implications Of 401(k) And IRA Plans For Australian Tax Residents

Matthew Marcarian   |   9 Apr 2024   |   3 min read

Retirement savings, especially when managing finances across international borders, can be complex. If you live in Australia, but hold plans in the USA, you need to understand the tax implications of having 401(k) and IRA plans. 

USA Tax Implications Of A 401(k) Or IRA Plan

401(k) and IRA plans are tax-advantaged retirement accounts that are available to US taxpayers. Contributions made to these accounts are typically tax-deductible, and earnings within the account grow tax-deferred until withdrawal. However, withdrawals from these accounts are usually subject to taxation in the USA. You should obtain tax advice from a qualified US tax advisor before accessing any benefits.

Australian Tax Implications Of A 401(k) Or IRA Plan

Australian tax residents (who are not temporary residents) are subject to tax on their worldwide income.

US retirement accounts like 401(k) and IRA plans are usually treated as foreign trusts by the Australian Taxation Office (ATO).

Therefore distributions from these vehicles will usually be taxable in Australia, except for amounts that can be said to represent contributions. This means that any taxable withdrawals from these accounts are treated as assessable income and taxed at the individual’s marginal tax rate. As foreign income, you would also be able to claim a Foreign Income Tax Offset (FITO) to reduce double taxation.

Roth 401(k) and Roth IRA plans are comprised of contributions made with after-tax dollars. This means that for Australian tax residents, withdrawals from these plans are generally tax-free.

Managing Funds While Living In Australia

For individuals residing in Australia who wish to access their US retirement funds, there are several options to consider:

  1. Funds in the USA: Australian tax residents can choose to leave their 401(k) or IRA funds in the USA subject to complying with relevant US requirements. 
  2. Withdrawal: Depending on the circumstances, individuals may opt to withdraw funds from their US retirement accounts. Careful consideration should be given to the tax implications of such actions, as they may trigger tax liabilities in both countries.

Our tax advisors and accountants are able to work with our clients, and their financial planners and wealth managers to clarify the taxation consequences, which would usually be an important element of the decisions that may be ultimately made.

Planning

Understanding the tax implications of 401(k) and IRA plans for Australian tax residents living in the USA is essential for effective retirement planning. While these accounts offer valuable tax benefits in the USA, they also come with potential tax liabilities in Australia. 

By navigating the complexities of dual tax systems and seeking professional advice, individuals can make informed decisions to optimise their retirement savings – while ensuring compliance with both US and Australian tax laws.

Given the complexities involved, seeking advice from tax professionals with expertise in both US and Australian tax law is highly recommended.

As specialists in International Tax, we can provide tailored guidance based on your individual circumstances. This can help you with your planning for accessing retirement funding in a way that helps you to minimise your tax obligations.

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Determining Corporate Residency

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Determining Corporate Residency

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The company is an Australian Resident

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Moving Overseas: Tax Consequences Of Keeping Or Selling Your Australian Main Residence

Matthew Marcarian   |   11 Mar 2024   |   5 min read

Leaving Australia means leaving your home. Unless you’re intending to return to Australia in the foreseeable future, this means deciding whether you want to keep or sell that property. 

When you move overseas on a permanent basis you cease to be an Australian resident and become a resident of your new home country. This means you need to consider the tax consequences on your Australian property from both an Australian perspective and in the tax jurisdiction of your new residence. 

Convert Your Former Home Into An Investment Property

When you hold onto the residence as an investment property the rental income becomes taxable income in both Australia and in your new home country.

Australian Taxes

As a non-resident of Australia, renting out your Australian property means you will need to continue to lodge an Australian tax return.

If you have a mortgage on the property then factoring in other property costs (such as repairs, insurances, agents fees, depreciation and land tax)  then your property may be negatively geared. This may result in tax losses that you carry forward until you have other Australian income to offset against these losses.

If your rental property generates a net profit, then this profit will be taxed at the marginal non-resident tax rates. Since there is no tax-free threshold for non-residents, you would be paying Australian tax from the first dollar of profit.

Overseas Taxes

The tax consequences in your new place of residence will depend on which country you are living in. There are a vast range of rules and understanding your requirements in your new home country will be important. 

Not all countries will require you to report your Australian sourced income and some countries may have special exemptions if you don’t bring the income into the country. You may also find that there are vast differences in what deductions you can claim against this income.

Double Taxation Relief

When you are living in a country that requires you to report your Australian sourced income you will likely find some relief through a double tax agreement. Typically, a double tax agreement will ensure that you don’t pay more than the tax than would apply if you were only taxed in the country with the highest tax rate. Sometimes a double taxation agreement is not required and the residency country will provide a credit under its domestic laws for foreign tax paid on overseas income which is also taxable in the residence country.

The most common form of double tax relief is an offset foreign tax paid. This means that any Australian tax that is paid would be credited against the income tax that your new home country assesses on your Australian sourced rental income.

Selling Your Australian Residence

If you decide to sell your Australian property while you are a non-resident then you must consider capital gains tax (CGT).

Australian Capital Gains Tax

Ordinarily an Australian resident does not have to pay CGT on their main residence. However, once you become a non-resident you lose this exemption if you sell the property while you are non-resident.

This means that if  you sell your Australian property as a non-resident, you  would be required to include the capital gain (or loss) in your Australian income tax return. You would be taxed on the capital gain at your marginal non-resident tax rates and you would most likely not be able to benefit from the full 50% CGT Discount. 

There are some exceptions to this. If a specified “life event” occurs within the first six years of becoming a non-resident, then the main residence exemption may continue to apply. These life events are all events that you cannot plan for, such as death, terminal medical condition, or a marriage breakdown.

Overseas Capital Gains Taxes

In the same way as Australian rental income may or may not be taxed overseas, your capital gain may or may not be taxed in your new country of residence. Any concessions, tax relief and applicable deductions may also differ in your new home.

As with tax on rental income, there may be double taxation prevention measures through a double tax agreement.

Seek Appropriate Advice For Your Situation

Since taxation in your new home will be quite different to the Australian taxation system it is important to seek advice from a local tax adviser for specific advice. 

An Australian chartered accounting and tax advisory firm experienced in dealing with international tax issues, CST can advise you of the tax consequences of your decision to hold or sell your Australian property. 

Note that a tax agent cannot advise you on whether you should sell or keep your property. This decision needs to be made with regards to your short and long term personal and financial goals. 

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Name is required.

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Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Place of
Incorporation

Is the company incorporated outside Australia?

Determining Corporate Residency

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Central Management
and Control

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of the company exercised in Australia?

Determining Corporate Residency

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Does the company carry on a business in Australia?

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Moving To Australia On A Global Talent Visa

Matthew Marcarian   |   2 Nov 2023   |   8 min read

Exceptionally talented individuals with the capacity to raise Australia’s standing in their field may be eligible for a Global Talent Visa. This Visa is a permanent residency Visa that offers a migration pathway to individuals who can bring exceptional skills into Australia.

Because the Global Talent Visa is not a temporary visa, the temporary resident tax concessions are not available and you will be taxed just like any other Australian citizen moving home to Australia.

As international tax specialists in Australia we are often asked by individuals moving to Australia on a Global Talent Visas, what the Australian tax implications of making this move are in relation to the assets back in their home country.

The tax implications of making this move will depend on the type of assets you have back home.

Below is an overview of what you can expect.

Moving To Australia With No Assets Other Than A Bank Account

When you move to Australia with no assets except the cash in your bank account, the tax consequences of holding onto your foreign assets are limited to foreign exchange (forex) issues. Since foreign currency is considered a taxable asset, Australia will tax realised exchange gains and will allow a deduction for realised exchange losses. 

This means that money sitting in a bank account with fluctuating values will have no tax consequence. However, if you spend or transfer that money, including bringing it into Australia at a later date, then you trigger a forex realisation event.

If the value of your qualifying forex accounts is less than AUD $250,000 then you can make an election (known as the Limited Balance exemption) which effectively allows an exemption so that you can disregard any forex gains or losses that might arise on the accounts. This is a simplicity measure for taxpayers who are considered to have low balances of foreign currency. The objective is to lower tax compliance costs. People moving to Australia should take advice on the effect of these rules on their foreign savings.

Moving To Australia With A Main Residence In Your Home Country

While an Australian resident is eligible for an exemption from capital gains tax on their main residence, it is unlikely that this exemption will apply to you. This is because you were not an Australian resident while you were living in your property, in your home country.

Once you are living in Australia the overseas property becomes a property that is not your main residence. This applies whether you rent the property out or not.

If you rent your former residence out it becomes an investment property. The rental income is taxable and the expenses associated with generating that rental income are tax deductible. This includes interest on any mortgage taken out to purchase or renovate the property, any local rates, repairs, and other costs. Travel costs incurred to inspect or repair the property are specifically precluded as an eligible deduction. If you pay income tax on the rental income overseas, then you will be able to apply that as a foreign tax credit in your Australian tax return. This way the Australian tax paid on this rental income is limited to any difference between the Australian tax assessed and the tax paid overseas.

If you don’t rent out your former residence (or otherwise earn income relating to the property), then there is no income to declare, and no ability to claim deductions relating to the cost of owning this property.

When you sell the property you will be subject to CGT. The CGT will be calculated on the difference between the value the property sells for and the value of the property at the time you moved to Australia.

Moving To Australia With Investments

If you hold assets in your country of origin, then you will be required to report any assessable income earned from those assets, as well as any capital gains or losses generated on the disposal of those assets.

Certain types of income, such as interest, royalties, and dividends, are typically covered by Double Tax Agreements (DTAs) in a way which limits the amount of tax that the country of origin can impose. This means it is important to advise your bank and investment managers when you become an Australian resident so that they can ensure the correct foreign tax rate is applied at the source.

Regardless of the tax rules in the country of origin, as an Australian tax resident you will be required to report income from all sources in your Australian tax return.

General Tax Information You Should Be Aware Of When Moving To Australia On A Global Talent Visa

It is important to keep in mind that moving to Australia on a permanent basis will mean you become an Australian tax resident.

For tax purposes this means you will need to declare your worldwide income in your Australian tax return, regardless of where the income is earned and whether the income is brought to Australia or stays in an overseas bank account.

All foreign investment income, including interest, dividends and foreign stock plans, are assessable in Australia, whether or not they are assessable in another country.

The foreign income must be reported in the relevant Australian tax year in which it was earned. This may be different to the tax year relating to foreign country in which the investment income was earned.

In general you will be able to offset the tax payable in Australia with any taxes already paid in the country of origin.

Also be aware that Australia has complicated rules if you have interests in overseas companies or trusts, even if you did not set up the relevant companies or trusts or even if they are just ‘family companies’ or ‘family trusts’.

Capital Gains Tax

Australia has a Capital Gains Tax regime. This means you may be required to pay capital gains tax on any assets that you retain in your country of origins.

CGT is assessed at the same rate as your marginal tax rate, however there is a 50% Discount on the value that is assessed on assets that have been owned for at least 12 months after becoming an Australian resident.

CGT discount example:

You purchase a property in 2020 for $500,000.

In 2024 you sell the property for $1,000,000.

This gives you a net capital gain of $500,000.

Instead of paying tax on the full $500,000 gain, tax is only applicable on 50% of the total gain, which means you only pay tax on $250,000.

Deemed Acquisition

At the time that you move to Australia, any assets that you retain overseas are considered to have been acquired for their market value on the day you arrive. This valuation will become their cost base for capital gains tax purposes in Australia.

You are also deemed to have acquired these assets on the date that you become an Australian resident. This ensures that any fluctuations in value between the original date of acquisition and your move to Australia, are ignored for CGT calculations. It also means that you need to continue to own your assets for at least 12 months from the date you move to Australia in order to access the 50% capital gains tax discount.

Summary

As an Australian tax resident you will be required to lodge an annual income tax return in which you must report:

  • Income from your worldwide source
  • Capital gains or losses on all assets held, regardless of the country in which they are held
  • Any foreign tax paid, which may be applied as a credit to reduce the amount of Australian tax assessed on foreign earnings

When you move to Australia your assets will be deemed to be acquired at the market value on the date you become an Australian resident.    

As everyone’s situation is unique, and tax laws are frequently updated, it is important to obtain up to date advice for your specific situation. This will ensure that specific factors that may impact your situation differently are also included in the advice, as well as ensuring you are getting the most up to date information.

eBook: Key Items A Global Talent Visa Holder Should Know When Moving To Australia

If you are moving to Australia on a Global Talent Visa you are likely to become an Australian tax resident. 

This eBook covers the 5 common tax concerns that those moving to Australia on a Global Talent Visa have including:

  1. When do I become a tax resident?
  1. Keeping foreign assets when moving to Australia.
  1. Foreign assets including foreign currencies, trusts, companies or retirement funds and pension loans.
  1. Selling your foreign main residence after moving.
  1. Using your foreign bank accounts.

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Determining Corporate Residency

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Corporate Residency

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Name is required.

Email is required.

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Place of
Incorporation

Is the company incorporated outside Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Central Management
and Control

Is the Central Management and Control
of the company exercised in Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Carry on a Business

Does the company carry on a business in Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Voting Power

Is the company's voting power controlled
by shareholders who are residents of Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

The company is an Australian Resident

Contact us for tailored international tax advice
regarding your client's specific situation.

Contact us for tailored international tax advice regarding your client's specific situation.

Contact Us

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

The company is not a resident
but it could be a CFC

Contact us for tailored international tax advice
regarding your client's specific situation.

Contact us for tailored international tax advice regarding your client's specific situation.

Contact Us

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

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Australian Expatriates: Casualties of Law

Matthew Marcarian   |   27 Jun 2023   |   1 min read

Our principal, Matthew Marcarian, was recently published in Australia’s leading tax journal, Taxation in Australia (run by the Tax Institute), with his article titled “Australian Expatriates: Casualties of Law“.

In his article Matthew looks at how over the last 20 years, Australia’s international tax settings have changed in a way which has increased the tax burden on Australian expatriates. Too often they become “casualties of law”, their interests overlooked by poorly conceived, and sometimes politicised, tax policy and design.

The article examines these changes and analyses major tax issues facing Australian expatriates at different stages of their expatriate journey. The article demonstrates how Australian expatriates can face higher taxes and significantly more complexity than fellow Australians.

The tax issues examined include the ongoing legislative uncertainty relating to individual and corporate tax residency, the removal of both the 50% CGT discount and the main residence CGT exemption for non-residents, the forex rules, the treatment of foreign structures, and overseas retirements plans.

The article also notes that an opportunity exists for the new Albanese government to address many issues to make them less burdensome and fairer for the Australian “diaspora”.

Read the article now.

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Determining Corporate Residency

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Corporate Residency

Please provide your details to access the online tool

Name is required.

Email is required.

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Place of
Incorporation

Is the company incorporated outside Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

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and Control

Is the Central Management and Control
of the company exercised in Australia?

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Use our online tool to determine the corporate residency of your client's business.

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Does the company carry on a business in Australia?

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Use our online tool to determine the corporate residency of your client's business.

Voting Power

Is the company's voting power controlled
by shareholders who are residents of Australia?

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Use our online tool to determine the corporate residency of your client's business.

The company is an Australian Resident

Contact us for tailored international tax advice
regarding your client's specific situation.

Contact us for tailored international tax advice regarding your client's specific situation.

Contact Us

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

The company is not a resident
but it could be a CFC

Contact us for tailored international tax advice
regarding your client's specific situation.

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Use our online tool to determine the corporate residency of your client's business.

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Australians Moving to the USA: Understanding your Tax Residency when moving to the USA

Matthew Marcarian   |   4 Jul 2022   |   5 min read

As an Australian moving to the United States, it’s important to understand what this means for your tax residency status. This is because your tax residency status will determine how your income will be treated for tax purposes.

Moving to the US on a Permanent Basis

If you move to the US on a permanent basis then it would usually be the case that you would be  considered a non-resident for Australian tax purposes from the day you leave. Note that a move can be considered permanent from an Australian tax perspective, even if you only expect to live in the US for a few years.

As someone making a permanent move to the US it is likely that you will be cutting most of your ties with Australia. Typically you may do things such as sell your Australian assets, close Australian bank accounts, resign from Australian clubs, remove yourself from the electoral roll, surrender your lease or sell your family home, all as part of and parcel of your move to the United States. In such cases usually you would become a non-resident of Australia.

However, there are exceptions and sometimes a person can become dual resident of Australia and the United States. Often this occurs because a person is living in the United States for long enough to be considered US resident but has not quite departed Australia for whatever reason. Sometimes it is because a person has employment or runs a business in the two countries and actually keeps two homes.

If you become a US tax resident and an Australian non-resident

If you leave Australia and become a US tax resident, then you will be subject to all the taxation rules that a US tax resident is subject to. We always recommend that clients obtain US tax advice before moving to the United States so that they are fully aware of how Australian assets would be treated by the IRS. 

As an Australian non-resident you would be subject to non-resident tax withholding rates on certain Australian sourced income, such as any Australian bank or unfranked dividends paid to you from Australian investments. For example this means that banks would withhold 10% of your interest income on your Australian accounts and Australian companies will deduct 15% withholding tax on unfranked dividends paid to you. BUt you will need to advise your bank and various share registrars that you have moved to the United States.

If you continue to earn any income from Australian sources (other than income that is specifically covered by non-resident withholding rates), then you would have to lodge an Australian tax return. A common example of this is rental income from an Australian property.

You would only be required to include any Australian sourced income, and this would be assessed at non-resident taxation rates. This income also needs to be declared in your US tax return as foreign income. You should also be able to claim a tax credit for any Australian tax already paid on the Australian sourced income in your US tax return.

If you have assets such as investment properties, a main residence, shares and managed funds it will also be vital for you to understand how Australia’s capital gains tax laws applied to you on your departure from Australia. Unless you make a specific choice to the contrary, becoming a non-resident of Australia gives rise to a deemed capital gain or loss arising on your assets and so obtaining income tax advice specific to your circumstances is important. At CST we can provide you with our Departing Australia Tax Review service and can also help you obtain US tax advice.

Dual tax residency?

Sometimes determining your tax residency status is not straightforward. This can happen when you meet the requirements for tax residency in both countries.

If this happens then you would first turn to the tax treaty between Australia and the US, for guidance on which country takes priority. Most of the time the tax treaty will provide sufficient rules to determine which country would be considered the country in which you have tax residency. 

In some cases, where an individual is genuinely living in both countries, regularly interchanging between locations, or having equal connections in both countries, a tax ruling may need to be sought and in some cases a treaty-based tax return is required to arrive at the correct result.

Final Words on Tax Residency

Your personal tax residency forms the basis of how all your income tax obligations are calculated, which makes the correct understanding of your tax residency vital, particularly for clients who may be travelling or moving between Australia and the United States, two high taxing countries with complicated tax systems.

When it comes to determining your tax residency it is always important to realise that tax residency is a matter of fact. Often a careful analysis of various facts will be required. Tax residency is not something that can be chosen, and therefore it is important to obtain timely advice so that income tax consequences arising either in Australia or the United States are well understood and budgeted for.

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Tax obligations for Australians working on Super Yachts

Matthew Marcarian   |   21 Jun 2022   |   8 min read

For Australians interested in travel, one of the appeals of working on a super yacht or cruise ship could be the idea that their income becomes tax-free once they leave Australia.

Unfortunately Australian citizens, and potentially permanent residents, may find themselves still obligated to pay Australian taxes.

The situation has become even more complicated this year, with travel restrictions bringing people to shores they weren’t intending to live on.

The following gives a basic overview of Australian tax residency, with particular regard to individuals working on super yachts or cruise ships. However, since every situation is unique, this information is of a general nature only. You should speak to a qualified tax professional to determine your own situation. 

Australian Tax Residents

In simple terms this means that Australian citizens, or long-term residents, who start working on a super-yacht and cruising around the world, will usually be treated as an Australian tax resident. 

We note that the Australian government has indicated that it will introduce new residency rules, which among other things will do away with the permanent place of abode test and will introduce a 45 day rule for Australian citizens instead. However, despite being announced these changes are yet to be legislated (as of the date of this blog post) and therefore the question of whether a person has an overseas permanent place of abode continues to be relevant. 

Non-Resident for Tax Purposes

Non-residents are only required to pay Australian taxes on income earned from Australian sources. This means that non-residents who are working on superyachts will not be subject to Australian taxes.

While the default may be to assume that anyone who isn’t an Australian citizen is automatically a non-resident once they start working on a ship that cruises around the world, this isn’t necessarily the case either. If their permanent abode is still in Australia, and they continue to hold Australian residency, then they may continue to be an Australian resident for tax purposes as well. 

Living in Australia due to COVID-19

One of the factors further complicating issues is the travel restrictions due to the coronavirus pandemic.

Australian citizens have returned to Australia, despite permanently residing in other countries. Australian residents who were travelling have found themselves stuck in other countries. Non-residents who were not planning to stay in Australia have been stuck living on Australian shores. Individuals who have been travelling around in cruise ships may find themselves particularly susceptible to these issues. 

The Australian government has indicated that anyone living in Australia solely because of coronavirus, will continue to hold their previous residency, as long as they plan to, and actually, return to their place of residency as soon as practical once travel restrictions have been lifted. However, this is not a concession in law and a lengthy stay in Australia could trigger Australian residency, for example if there is an intention to reside here, regardless of the reason for that intention.

Place of “abode”

Living on a cruise ship or superyacht is usually not considered to be sufficient to establish a permanent home. The situation could be different if you have legal rights to reside in a particular country and you do so on a cruise ship. 

This means that Australians who simply start working on such ships will typically continue to be Australian residents, no matter how long they stay on such ships or how long they are employed overseas in these roles.

If an Australian has moved overseas and clearly established and used their permanent place of abode in another country before, or perhaps during, their time employed on cruise ships or super yachts, then their situation may be different. 


Example of an Australian citizen with ties to various countries, who is working on a Superyacht 

To understand how the situation can get a little tricky, consider this example of an Australian citizen.

Scott is an Australian citizen who moved to Singapore in 2000 and became a non-resident for Australian tax purposes by virtue of living in Singapore on a permanent basis. In 2005 he started working on international yachts and was paid in USD. After commencing this job he has rarely been back to Singapore.

Since his yacht licence was not recognised in Australia, Scott had no intention of returning to Australia to work. He still kept an Australian bank account with a reasonable amount of money that he could use during holidays in Australia to visit with family every year or so. He also holds bank accounts in various other countries and visits various other countries in between working as well. 

In 2019 Scott was granted permanent residency in France, however work commitments meant that he had not actually spent much time in France.  

Scott became, and continues to be involved in a romantic relationship with a Samoan national who also works on the superyachts. She is not an Australian citizen and has never lived in Australia. She has only visited Australia once with Scott and likewise, he has only visited her home in Samoa on one occasion. The couple began to spend most of their free time together in Malaysia and Indonesia. They have not purchased or contracted a home in either location and appear to treat their visits to Malaysia and Indonesia as holidays. 

In this situation Scott ceased residency back in 2000 when he moved to Singapore. However, at some point, since starting to work on the yachts, he appears to have severed ties with Singapore. He no longer appears to consider that his home, he has no assets there, does not return there in between work trips, and ultimately applied for residency in France.

Although he has been given residency in France, Scott has not purchased a home there, and does not regularly spend time there. Scott and his partner choose to spend most of their non-work time in Malaysia and Indonesia, however they show no indication that these places provide a permanent place of abode either, preferring to treat their trips as vacations in between working at sea.

Where is Scott a tax resident?

Luke is an Australian citizen who moved to the UK in 2000 with his wife, who is also an Australian citizen. Luke and his wife purchased a home in the UK and started a family there. In 2017 Luke was employed on a cruise ship. In between work shifts Luke always returns to the UK to be with his family. 

Luke and his wife visit their families back in Australia most years. They usually travel together, with their children, for these visits, except where the visit is based on an opportunity that has arisen due to the cruise ship docking on Australian shores.

Luke has a bank account, investments, and social ties in the UK. He maintains an Australian bank account, which he and his family use on their visits to Australia. 

In March 2020 Luke’s ship docked on Australian shores, and the Australian government advised Australians to return to Australia for the duration of the pandemic. Due to the pandemic and the Australian government’s travel announcements, Luke’s wife and children decided to fly over to join Luke in Australia. The family planned to return to the UK once travel restrictions were lifted. However they decided to remain in Australia while the pandemic worsened in the UK and things were still up in the air with Luke’s employment.

At this point in time Luke is not an Australian resident. He has established a permanent home in the UK with his family. They are staying in Australia with other family members or may be in temporary accommodation, not having established a home of their own here. They currently plan to return to the UK when it becomes practical to do so.

However, if Luke and his family decide to make Australia a permanent home their situation would change. This could happen if they decided to rent out a house for themselves, instead of continuing to stay with family, if they enrolled their children in Australian schools, and if they resigned from their employment to take up permanent positions in an Australian job. They could also face a deemed change of residency for the duration of their stay in Australia if the family continues to live in Australia after Luke returns to work on the yachts and he starts coming back to Australia instead of their home in the UK. 

Australian Residency While Working on a Super-Yacht or Cruise Ship

In general an Australian resident continues to be an Australian resident after taking up employment on a superyacht. This is because the ATO considers that their residence on the yacht is of a transitory nature. 

An Australian citizen who was living overseas may also become an Australian resident for tax purposes again, if they commence working on a superyacht and do not maintain ties with an alternative permanent place of residence. On the other hand, an Australian citizen who has clearly established themselves as a non-resident by setting up a permanent home overseas, will not automatically resume Australian tax residency if required to stay in Australia due to the coronavirus pandemic. 

Since the issue of residency for people working and essentially living on cruise ships and superyachts can be quite complex, it is important to discuss your unique situation with a tax agent who is experienced in residency issues.

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Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

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Determining Corporate Residency

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Determining Corporate Residency

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Carry on a Business

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Determining Corporate Residency

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Voting Power

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Determining Corporate Residency

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The company is an Australian Resident

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Contact us for tailored international tax advice regarding your client's specific situation.

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Australians Moving to the USA: How is your Australian superannuation affected when moving to the USA?

Matthew Marcarian   |   17 May 2022   |   3 min read

If you’re moving to the United States then you’ll need to understand how tax laws apply to your current and future superannuation account.  You should also obtain financial advice from a qualified financial planner before seeking access to your super.

Moving to the US on a Permanent Basis

If you are an Australian moving to the United States on a permanent basis then you are likely to be considered a non-resident for Australian tax purposes. This means that you will, by and large, be considered a tax resident of the US. 

In this situation Australia’s tax laws will continue to apply to your Australian superannuation in terms of how your superannuation earnings are taxed. However you should seek US tax advice in relation to how the IRS would seek to tax your Australian superannuation account or fund. CST Tax Advisors in the US can assist you with that. 

If you have an Australian self managed superannuation fund you should seek advice in Australia before you leave to avoid your SMSF being deemed non-complying, as generally the SMSF cannot be run by non-residents and should usually not accept contributions from foreign members. If your SMSF becomes non-complying because of your move, substantial additional tax may be levied by the ATO on your SMSF.

Accessing your Superannuation

Basically this means that your superannuation will continue to remain preserved in your Australian superannuation fund until you reach retirement age. If you continue to work for an Australian employer, they may continue to be required to contribute to your superannuation fund. 

When you are eligible to withdraw your Superannuation, if you are still living in the US, then you may find that these payments count as taxable income in the US. 

Contributing to your Superannuation

If you are eligible, and choose to continue to make contributions into your Australian superannuation fund to support your retirement, then you will likely find that these contributions do not count as tax deductions against your US assessable income. You should obtain specific tax advice from a US tax advisor or CPA.

While these payments may count as tax deductions in your Australian tax return to reduce any Australian sourced taxable income, superannuation contributions cannot be used to create a tax loss. This means that contributions that you choose to claim as a tax deduction may be wasted if you don’t have other Australian income to offset.

Since making superannuation contributions may not be a tax effective option, it is important to understand the full financial impact of your choice by talking to an appropriately experienced US tax agent, as well as an Australian tax agent. 

Talk to your tax agent about the tax consequences on your Superannuation plan before you move

Moving overseas can create a large number of potentially complex taxation issues to consider, particularly for those who have self managed superannuation funds. 

It is important to speak to an appropriately qualified and experienced tax agent about your specific situation. Planning ahead ensures you have the information necessary to make informed choices, and prevents you from being surprised with unexpected tax costs. 

It may also be advisable to speak to a financial planner so as to make the most appropriate plan in relation to investing for your future.

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Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

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Is the company incorporated outside Australia?

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Potential Changes To Australia’s Personal Tax Residency Laws

Matthew Marcarian   |   16 Mar 2022   |   4 min read

On 11 May 2021, the Australian Government announced that it is considering replacing Australia’s existing residency rules with a new ‘modernised framework’.

This update is intended to be based on a report by the Board of Taxation from March 2019.

The changes have not been passed into legislation at publication of this article.

Our Principal, Matthew Marcarian, analyses the changes and what it might mean for Australian expats in his – Australia To Change Personal Tax Residency Laws – article.

Below is a summary of the article.

Why might the Rules be Changing?

The Government has indicated that the rules are changing in order to:

  • make them easier to understand and apply in practice
  • deliver greater certainty
  • lower compliance costs for globally mobile individuals

 What is Changing?

Under the current rules an individual is a tax resident if they:

  • reside in Australia
  • have their domicile in Australia
  • live in Australia for at least 183 days of the year, or
  • are a member of certain Commonwealth Government superannuation funds.

Unfortunately, due to the lack of measurable criteria in these tests there is a lot of grey area when it comes to the more complex situation involving travellers and individuals with more ambiguous mobile living situations.

The intended change will update these rules to focus on a framework that centres on three things:

  • Physical presence in Australia
  • Australian connections
  • Objective criteria

While the precise nature of the intended update is not yet known, the Board’s recommendation has indicated specific, measurable tests that an individual should pass to meet the residency test. To this end there are three proposed tests to be considered.

1: The 183 Day Physical Presence Test

It is expected that the new primary test will be as simple as determining that an individual has spent at least 183 days physically present in Australia during the given tax year.

2: Commencing Residency Test

When an individual moves to Australia and is only here for between 45 and 183 days they would also need to satisfy at least 2 of the following factors

1. The right to reside in Australia (citizenship or permanent residency)

2. Australian accommodation

3. Australian family

4. Australian economic connections such as:

     a. Employment in Australia

     b. Actively involved in running a business in Australia

     c. Interests in Australian assets

Ceasing Residency Test

To cease residency an Australian would need to spend less than 45 days in Australia during the year, as well as the preceding two years. However, residency would cease immediately where the individual moves overseas to take up overseas employment and the individual:

1. Was an Australian resident for three previous consecutive income years

2. The overseas employment is for at least two consecutive years

3. Has overseas accommodation for the duration of their overseas employment

4. Is physically outside of Australia for less than 45 days in each year they are living overseas

Summary

The proposed rule changes are intended to simplify and clarify the law around determining residency. However, there is still work to do to develop the tests and factors. Further consultation in drafting the legislation is encouraged.

Australia To Change Personal Tax Residency Laws has been written by our Principal, Matthew Marcarian

When it comes to providing tax advice, Matthew believes it is about more than the simple tax consequences. It is about gaining a deep understanding of the client’s situation to formulate clear, robust tax and business advice that deals with both current and potential tax concerns.

With over 20 years of experience providing international tax advice to a wide range of clients, Matthew is well adept at helping clients manage and plan for the tax outcomes and opportunities, both domestically and abroad.

With extensive qualifications in international taxation and personal experience living as an expat, Matthew is a leader in his field with specialist expertise in relation to trusts, controlled foreign companies, international taxation and advising Australian businesses expanding overseas.

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Determining Corporate Residency

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Central Management
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Determining Corporate Residency

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Carry on a Business

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Determining Corporate Residency

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Voting Power

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Determining Corporate Residency

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The company is an Australian Resident

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Contact us for tailored international tax advice regarding your client's specific situation.

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Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

The company is not a resident
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Contact us for tailored international tax advice
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Singapore is often chosen as a regional business hub for Australian companies looking to expand into Asia or beyond. This is largely because Singapore is one of the countries where there are limited restrictions on foreign businesses setting up. Accordingly it is possible for a fully Australian owned company to operate a business in Singapore. 

This blog considers the potential tax implications of running a business in Singapore through an Australian resident company.

What is an Australian Resident Company?

A company may be an Australian company due to one of three possibilities: 

  • Incorporation in Australia
  • Central management and control being exercised from Australia, or 
  • Voting power is controlled by shareholders who are Australian residents.

This means that even if the decision is made to incorporate a company in Singapore to oversee the business, the company may still be considered an Australian company if the business is managed in Australia, or if the controlling shareholders are Australian residents.

Singapore Company

A company is considered a Singapore tax resident when the control and management of the company is in Singapore. This means that even if a company is incorporated in Singapore, if it is controlled and managed in Australia, then the company will simply be an Australian resident company. 

However, if the company is incorporated in Australia but controlled and managed in Singapore then both Australia and Singapore will consider the company to be a resident company. When this situation occurs the company will need to consider the double tax agreement between Australia and Singapore.

For the purposes of this blog we are looking at a company that is an Australian resident company operating a business in Singapore through a subsidiary incorporated in Singapore.

Australian Taxes

An Australian resident company is subject to Australian taxes on income from worldwide sources. This means that all business income and any capital gains, will need to be reported in an annual income tax return.

Singapore Taxes

If the company is not a resident company in Singapore but it operates a business in Singapore  then the company is usually only taxed on the Singapore-sourced income that is generated through the business. 

The Singapore company tax rate is a flat 17%, but many concessions can apply to reduce the effective tax rate. 

The company may also be required to register for GST in Singapore. Other local taxes may also be payable. 

Double-Taxation

Under the double-taxation agreement between Australia and Singapore an Australian resident company only has to pay taxes in Australia. However, where the Australian company runs a business in Singapore through a permanent establishment in Singapore then Singapore has taxation rights over the profits generated through this permanent establishment.  

As a business operating in Singapore the company will be required to pay income tax on such business income at a rate of 17%. 

When the income is reported in the Australian tax return the company will be eligible to claim the foreign tax paid as a credit against the Australian tax assessment. This ensures that the company will only be paying taxes at the higher Australian tax rate. 

When you decide to expand your business into Singapore it is important to ensure that you get your structuring right, and that you understand the full tax implications of your various options. There are a range of questions that need to be addressed including profit repatriation to Australia, withholding tax, transfer pricing, debt/equity and foreign currency issues. 

Make sure that you speak to an experienced international tax expert before making your move. 

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Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Corporate Residency

Please provide your details to access the online tool

Name is required.

Email is required.

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Place of
Incorporation

Is the company incorporated outside Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Central Management
and Control

Is the Central Management and Control
of the company exercised in Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Carry on a Business

Does the company carry on a business in Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Voting Power

Is the company's voting power controlled
by shareholders who are residents of Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

The company is an Australian Resident

Contact us for tailored international tax advice
regarding your client's specific situation.

Contact us for tailored international tax advice regarding your client's specific situation.

Contact Us

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

The company is not a resident
but it could be a CFC

Contact us for tailored international tax advice
regarding your client's specific situation.

Contact us for tailored international tax advice regarding your client's specific situation.

Contact Us

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Contact Us

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Federal Budget Update 2021

Matthew Marcarian   |   12 May 2021   |   5 min read

Australian Treasurer Josh Frydenberg presented the Australian Budget on 11th May 2021. 

Our Principal, Matthew Marcarian outlines the key budget announcements that may affect our clients. 

Changes to Australia’s personal tax residency rules

The Government has announced that it will adopt a new framework for personal tax residency which will be based on the recommendations of the Board of Taxation made in March 2019. 

The Budget papers indicate that the objective of the change is to make personal tax residency laws ‘easier to understand and apply in practice, deliver greater certainty and lower compliance costs for globally mobile individuals.’ 

The question is whether the amending legislation will actually achieve that objective.

Essentially the government proposes a ‘bright line’ test of 183 days. However, just how bright that line actually is will depend on the drafting and the overall framework of the laws when they are introduced. 

It also seems to be the case that under the new proposed laws, an Australian expat could be found to be a resident even if they spend less than 183 days in the country, where there are other residency indicators present.

In essence this mirrors the existing common law position, but elevates certain common law tests into tax legislation. 

This may result in the removal of uncertainty in some situations – but if not handled carefully, will risk creating other interpretational problems that the common law can more flexibly deal with.

The Government is also likely to introduce specific tests in relation to ‘commencing residency’ and ‘ceasing residency’ in an attempt to increase certainty in the law. 

CST would like to see that the exposure draft process for the new legislation gives the tax community extensive time to provide feedback given how sensitive this area of tax law is to interpretation, how fundamental tax residency is and how far reaching legislative changes are likely to be.

The changes to residency laws will only be effective from the start of the tax year after which the proposed legislation receives Royal Assent. 

This means that if the amending legislation can receive Royal Assent before 30 June 2022 then it will be effective from 1 July 2022.

CST will stay at the forefront of these legislative developments and will be providing feedback to the government on exposure draft legislation, based on our extensive advisory experience in these areas. 

Patent Box

The Government has announced a limited Patent Box regime which will apply a concessional 17% company tax rate to income derived from Australian medical and biotechnology patents. 

We are not sure why 17% was the chosen rate – but we note that it is identical to Singapore’s general company tax rate.

If we are absolutely committed to encouraging this industry in Australia, we would like to see a bolder policy approach here with a more meaningful reduction in the applicable tax rate to 10%, if not lower. That would be much more competitive on the global stage.

The Government has committed to consulting industry before settling on the detailed design of the Patent Box.

Self Managed Superannuation Fund – relaxing residency requirements

The Government has announced that it will permit people who are temporarily overseas to continue to contribute to a Self Managed Super Fund beyond the current 2 year period and upto 5 years. 

However if someone is overseas for up to 5 years they would normally be considered to be non-resident, which would imply that they are not ‘temporarily overseas’ and would therefore not be eligible to keep contributing to a Self Managed Superannuation Fund. 

The Government needs to re-assess this change. We believe the best approach would be to introduce a direct link to the actual tax residency of the member, rather than rely on the notion of ‘temporary’ absence.

Change to Employee Share Scheme Rules

The government has announced that it will amend the Employee Share Scheme (ESS) rules so that the end of a person’s employment will not be a taxing point for individuals any longer under the ESS regimes. 

For clients who are able to keep unvested ESS interests at the end of their employment, this change is excellent.

In the past the law has been problematic for clients where a taxing point has arisen because of employment ending – even though the shares or options had not actually vested, resulting in unfunded income tax bills and heavy compliance costs.

Moving forward, for a deferred ESS scheme, the taxing point will essentially be earlier of the time when there is no risk of forfeiture and no restrictions on disposal, or 15 years.

Removal of the Work Test for Voluntary Superannuation Contributions

In a welcome change, the Government will allow individuals aged 67 to 74 to make non-concessional contributions subject to the existing caps.

However for concessional contributions (i.e personal deductible contributions) the work test still applies. 

We think that the law should have been simplified further so that irrespective of the type of contribution the work test should not apply – particularly given the caps on concessional contributions are quite low being $27,500.

This change is expected to be implemented in time for application for the 30 June 2022 tax year.

Removal of $450 per month threshold for superannuation eligibility

In an excellent measure the government will remove the current $450 monthly threshold meaning that all Australian resident employees will receive superannuation.

Under the current law someone who earned $300 per month missed out on superannuation and given that technology allows employees to so easily make contributions given the onset of single touch payroll – this change is welcome to enhance fairness in our system.

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Do you need tax services in our other regions?
By providing us your information you agree to our privacy policy

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Corporate Residency

Please provide your details to access the online tool

Name is required.

Email is required.

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Place of
Incorporation

Is the company incorporated outside Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Central Management
and Control

Is the Central Management and Control
of the company exercised in Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Carry on a Business

Does the company carry on a business in Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Voting Power

Is the company's voting power controlled
by shareholders who are residents of Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

The company is an Australian Resident

Contact us for tailored international tax advice
regarding your client's specific situation.

Contact us for tailored international tax advice regarding your client's specific situation.

Contact Us

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

The company is not a resident
but it could be a CFC

Contact us for tailored international tax advice
regarding your client's specific situation.

Contact us for tailored international tax advice regarding your client's specific situation.

Contact Us

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Contact Us

"*" indicates required fields

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