The United Kingdom is prepared to abolish the non-domiciled (“non-dom”) tax status from April 6, 2025. This is a significant reform which will mean that all UK residents, regardless of their domicile, will be taxed on their worldwide income.

Current Tax Rules In The UK For Non-Domiciled Individuals

Under the current tax rules Australians who live in the UK are taxed according to their domicile status and the nature of their income. An Australian who is not domiciled in the UK may make a claim to be taxed on foreign income on a remittance basis, meaning you are only taxed on any UK-source income and gains plus any foreign income remitted to the UK.

They are also able to return home to Australia without worrying about any ongoing impact of UK taxes for anything other than assets that remain in the UK.

How The UK Tax Rules Are Changing

There are a number of key aspects of the proposed changes which could have a significant impact on Australians in the UK. These include:

1. Abolition Of The Remittance Basis

Under the new system, individuals will be taxed on their worldwide income, similar to the way that Australian residents are taxed on their worldwide income. This means that while living in the UK you will need to include any income that you earn from Australian investments or income sources in other countries, even if you don’t bring that money into the UK.

2. Introduction Of A Four-Year Foreign Income And Gains Regime

On the positive side, new arrivals to the UK, who have not been UK tax residents in the previous ten consecutive years, will benefit from a new four-year period during which they receive 100% relief on foreign income and gains. This relief applies irrespective of whether the income is remitted to the UK. This effectively allows individuals to live in the UK for 4 years without having to worry about the consequences of bringing in their overseas income, and may make it more appealing for Australians to live in the UK on a short term basis that does not exceed this four year period. 

3. Imposing Inheritance Tax (IHT) Even After Departure From The UK

The domicile-based system for IHT will be replaced with a residence-based system. In addition, expats who return to Australia after the new rules are in place may be exposed to IHT for up to 10 years after leaving the UK. This makes estate planning more complex for any Australians living in or returning from the UK.

4. Capital Gains (CGT) On Worldwide Capital Gains

Australians who previously benefited from the remittance basis will now face UK CGT on all gains from worldwide assets, even if those gains are not brought into the UK.

Transitional Rules

There are a number of transitional rules that will help ease UK residents into the new tax system.

Individuals who have previously been non-domiciled and used the remittance basis of taxation will have the option to value their foreign capital assets as of April 5, 2017. This creates a new capital base value to avoid CGT applications on the increase of value up to that date.

Current non-dom individuals will also have access to a transitional discounted tax rates on their previously unremitted foreign income and gains until the 2028 tax year.

Practical Steps To Take If You Stay In The UK After April 6, 2025

Australians who are currently non-domiciled residents of the UK, who decide to stay in the UK, should take practical steps to minimise their UK tax exposure and optimise their financial position. Key actions include:

1. Revaluing assets held outside the UK prior to April 2017 for CGT purposes.
2. Selling assets before April 2025 if advantageous.
3. Utilising transitional tax reliefs by obtaining the right advice from a tax specialist.
4. Maximising the four-year tax exemption (if eligible).
5. Reviewing investment strategies, retirement planning and estate planning strategies to factor in the new tax consequences of remaining in the UK.
6. When assessing the timing of potentially returning to Australia, consider the impact of Inheritance taxes if you live in the UK for 10 years or more.
7. Keep clear records and obtain up to date tax advice to mitigate tax consequences.

It is important to engage an international tax specialist to complete a personalised assessment for tax planning in your specific situation.

Revalue Australian (And Other Foreign) Assets

You should obtain formal or independent valuations for properties, shares, and other investments as of 6 April 2017.

The UK is offering a one-time rebasing relief, allowing individuals who previously used the remittance basis to revalue their foreign assets to April 6, 2017, for Capital Gains Tax (CGT) purposes. This means only gains accrued after April 6, 2017, will be subject to UK CGT when the asset is sold. This relief is not applicable if you were deemed to be domiciled at some point between 6 April 2017 and the introduction of the new tax laws on 6 April 2025.

Plan Asset Sales Before April 2025

If you are planning to sell Australian assets:

a) Consider if there is an overall benefit in selling these assets before April 6, 2025 to avoid UK CGT.

b) If selling after April 2025, use the rebasing relief to reduce taxable gains.

c) Review whether holding assets via a trust or corporate structure might help in specific cases. If so, it may be possible to sell individually owned assets to a corporate structure that you control prior to April 6 2025.

After April 2025, all worldwide capital gains (including on Australian assets) will be taxed in the UK unless you are living in the UK for less than 4 years.

Use Transitional Tax Discounts

Take advantage of any transitional rules where possible.

a) If receiving Australian rental income, dividends, or business profits, consider bringing forward earnings to take advantage of this discount.

b) If withdrawing funds from an Australian trust or investment portfolio, consider timing withdrawals within this period.

For tax relief that is based on timing and access to transitional rules it is important to obtain correct and up to date tax information from the relevant tax specialist.

Consider How To Utilise The Four-Year Foreign Income And Gains Exemption For New Arrivals

If you have not been a UK resident in the previous 10 years then you can utilise the new four-year foreign income exemption.

a) New and recent arrivals in the UK should utilise this period of exemption to plan and structure income sources for optimal tax outcomes.

b) Where you have control over timing of income, consider triggering capital gains or significant foreign income events within the four-year exemption period.

Notably, under the new rules the four-year exemption applies regardless of whether the funds are brought into the UK. This means that any Australians who were not UK tax residents in the previous 10 years will not be taxed on foreign income or gains for their first four years in the UK. This gives Australians a good opportunity to live in the UK on a short-term basis without being impacted by the new rules.

Review Australian Superannuation And Pension Taxation

Engage a tax specialist to complete tax planning strategies for your retirement and review any current and upcoming lump sum or pension income.

a) Obtain long term advice on tax planning strategies that take into consideration the way the new rules will impact any UK tax on lump sum withdrawals or pension income from Australian super funds.

b) If applicable, time superannuation withdrawals strategically before tax rates increase.

c) Consider the types of investment income you are currently earning from Australia. Understanding the tax consequences of these changes gives you the opportunity to assess optimising your ongoing investment and income strategies.

With the tax rules changing, it is important to understand how this could impact your long-term and immediate investment and retirement plans so you can make informed decisions about your finances.

Plan For UK Inheritance Tax (IHT) On Worldwide Assets

The UK imposes an inheritance tax (IHT). Under the new rules IHT will apply to worldwide assets.

a) Consider trusts or corporate structures to protect assets from UK IHT.

b) Review wills and estate planning to align with both UK and Australian tax laws.

c) If planning to leave the UK, remember IHT exposure may continue for 10 years after departure.

Under the new rules, individuals who have been a UK tax resident for 10+ years will be subject to IHT on worldwide assets. This includes Australian property, shares, and businesses. It is therefore important to revise your inheritance strategies if you will be a long term UK tax resident. You should also consider the impact of IHT when assessing timing for making a move back to Australia, as you may be able to avoid IHT by making an earlier move.

Maximise Double Tax Relief And Tax Credits

Talk to an international tax specialist to ensure you have appropriate, current and up to date tax planning strategies in place that consider the new rules. With the UK taxing worldwide income it will be more important to utilise double taxation relief provisions to minimise your tax exposure.

a) Keep detailed tax records to claim foreign tax credits efficiently.

b) Engage an international tax advisor to structure investments efficiently.

The UK-Australia DTA can mitigate double taxation, but relief must be claimed properly as certain income types (e.g., rental income) may still be taxable in both countries.

In Summary 

The new rules will have a significant impact on Australians living in the UK, both while they are living in the UK, and when they return home. For more about the tax implications of returning to Australia under the new rules see our article Australians Living In The UK: Returning To Australia Under The New Non-Dom UK Rules.

While the new rules may reduce the tax impact of residing in the UK for a period of less than four years, long-term residents will now be liable for UK taxes on their worldwide income. This is a significant departure from the current income remittance rules and will mean any Australian currently residing in the UK should seek tax advice regarding their worldwide assets and investments. 

Moving to the United States as an Australian expat is an exciting step, but it also comes with a range of financial and tax implications that can be confusing. 

One of the most significant concerns we encounter for Australians relocating to the U.S. is how their Australian superannuation is treated. Unlike other investments, superannuation has unique tax and reporting requirements that can significantly impact your financial position.

This article explores how your Australian superannuation is treated in the U.S., the disclosures and forms you need to file, the consequences of contributing to super while living in the U.S., and what happens when you access your super while residing in America.

How Is Your Australian Superannuation Treated In The U.S.?

Superannuation is a cornerstone of retirement planning for Australians, but once you move to the U.S., its classification under American tax law becomes complicated. 

The main challenge arises from the fact that the U.S. does not recognize Australian superannuation as a tax-deferred retirement account like a U.S. 401(k) or IRA. Instead, the U.S. views superannuation in one of two ways:

1. Foreign Trust – The Internal Revenue Service (IRS) may consider your super fund as a foreign grantor trust, subjecting it to complex U.S. tax and reporting requirements. This classification may lead to additional tax liabilities, particularly when earnings inside the super fund are realized.
   
2. Foreign Pension – In some cases, the superannuation fund may be classified as a foreign pension, which can offer a more favorable tax treatment. However, there is no definitive IRS guidance on this, leading to inconsistent application of tax rules.

Taxation Of Superannuation In The U.S.

Regardless of its classification, the U.S. generally taxes superannuation in ways that differ from Australian tax laws. While contributions and earnings may grow tax-free in Australia, the U.S. may tax contributions, earnings, and distributions differently. Key considerations include:

• Employer Contributions: Employer contributions to your super fund may be considered taxable income in the U.S. in the year they are made.
  
• Investment Earnings: Earnings within your superannuation fund, such as dividends and capital gains, may be subject to annual U.S. taxation, even if they are not distributed.
  
• Withdrawals and Distributions: The tax treatment of superannuation withdrawals varies, but in many cases, distributions may be taxed in the U.S. as ordinary income, even if they are tax-free in Australia.

The range of outcomes noted above depends on the type of superannuation fund you have.

Self Managed Superannuation Funds

For expats in the USA that have a ‘Self-Managed Superannuation Fund’ urgent attention is needed toward restructuring your Superannuation Fund BEFORE you move to the USA.

Remaining the Trustee of an Australian Superannuation Fund after you move to the US – even inadvertently – causes a number of serious tax issues both in Australia (not the focus of this article) and the USA.

One of the major issues is that you are personally taxable on the income of the Australian Self-Managed Superannuation Fund as it arises. This can add materially to your USA tax bill and should be avoided.

What Disclosures And Forms Do You Need To File?

As an Australian expat living in the U.S., you must comply with stringent reporting requirements related to your superannuation. 

Failure to do so can result in significant penalties. Some of the key forms and disclosures include:

1. FBAR (Foreign Bank Account Report) – FinCEN Form 114
   • If the total value of your non-U.S. financial accounts (including superannuation) exceeds $10,000 at any time during the year, you must file an FBAR.
   • Superannuation accounts are generally considered foreign financial accounts and should be included in the FBAR filing.
2. Form 8938 (Statement Of Specified Foreign Financial Assets)
   • If the total value of your foreign financial assets (including superannuation) exceeds certain thresholds ($50,000 for single filers, $100,000 for married filers living in the U.S.), you must file Form 8938 with your tax return.
   • This form is in addition to the FBAR and provides the IRS with detailed information about your foreign financial accounts.
3. Form 3520 (Annual Return To Report Transactions With Foreign Trusts)
   • If your superannuation is classified as a foreign trust, you may need to file Form 3520 to report contributions and distributions.
4. Form 8621 (Passive Foreign Investment Company – PFIC) Reporting
   • If your superannuation fund holds certain types of investments (e.g., managed funds), you may have to file Form 8621 to report Passive Foreign Investment Company (PFIC) income.

Consequences Of Contributing To Super While Living In The U.S.

If you continue making superannuation contributions while residing in the U.S., you may face unintended tax consequences:

• U.S. Tax on Contributions: Since the U.S. does not recognize super contributions as tax-deferred, employer contributions may be taxable to you in the year they are made.
• Double Taxation Risks: While contributions may be tax-free in Australia, they may be taxable in the U.S., leading to double taxation.
• Compliance Burden: Additional contributions increase the complexity of reporting and could result in higher U.S. tax compliance costs.
• Potential Loss of Benefits: Depending on how your super fund is classified, additional contributions could subject you to PFIC rules, leading to unfavorable tax treatment.

What Happens When You Can Access Your Super And Are Living In The U.S.?

When you reach preservation age and become eligible to withdraw your superannuation, you must consider how the U.S. will treat these withdrawals:

• Australian Tax Treatment – In Australia, lump-sum withdrawals from super after the age of 60 are typically tax-free.
• U.S. Tax Treatment – The U.S. may treat these withdrawals as taxable income, potentially subjecting them to ordinary income tax rates.
• Foreign Tax Credits – You may be able to offset some U.S. tax liability by claiming foreign tax credits, but this depends on the tax treaty’s applicability and how your super is classified.
• State Taxes – If you live in a U.S. state that imposes income tax, super withdrawals may also be subject to state taxation.

Strategies For Managing Your Super As A U.S. Based Expat

To minimize your tax burden and compliance obligations, consider the following strategies:

1. Pause Contributions While In The U.S.
   • Avoid making new contributions to super to prevent triggering additional U.S. tax and reporting obligations.
2. Review Your Super Investments
   • Assess whether your super fund contains investments subject to PFIC rules, and consider adjusting your investment mix.
3. Work With A Tax Professional
   • Given the complexity of superannuation taxation in the U.S., consult a tax advisor experienced in cross-border taxation.
4. Plan For Withdrawals
   • If you intend to withdraw super in the future, explore tax-efficient withdrawal strategies to minimize your U.S. tax liability.

Key Takeaways For Australians Living In The USA With Superannuation

Navigating superannuation as an Australian expat in the U.S. is challenging due to differing tax treatments and complex reporting requirements. 

Understanding how your super is classified, ensuring compliance with U.S. tax laws, and proactively planning for contributions and withdrawals can help you avoid unnecessary tax burdens. 

Given the nuances of cross-border tax regulations, seeking advice from an international tax firm is essential to optimize your financial situation while living in the U.S.

By staying informed and proactive, you can ensure that your superannuation remains a valuable asset for your retirement, regardless of where you reside.

Managing taxes can be challenging, particularly when living overseas. 

Many Australian expats in the USA wonder, “What happens with taxes on Australian shares I still own back home?”

If you’re an Australian expat in the USA, there are a few things to know about the tax implications of holding Australian shares. 

You may already be aware of how the franking credit system in Australia works and how tax credits are tied to dividends. 

However, the US doesn’t have an equivalent system. 

Here’s how taxes on your shares work when you’re a US tax resident.

What It Means To Be A US Tax Resident

Let’s assume you’ve moved to the USA and are now a US tax resident. 

When you lived in Australia, you paid tax on all your worldwide income. 

Now, as a US tax resident, you’ll only need to pay Australian taxes on assets with a direct link to Australia.

However, the USA also taxes worldwide income, so income from both Australian and US sources must be reported. US tax rates vary by income type—ordinary income, capital gains, and qualified dividends, each with its own rate.

Owning Australian Shares

If you own shares in Australian companies, here’s how taxes apply to dividend income from those shares.

• Franked Dividends: In Australia, franking credits are added to dividends to reduce double taxation. For expats, these credits usually cover Australian taxes, so you won’t pay additional Australian taxes on franked dividends. However, no tax refund is provided for these credits, even though they offset your Australian tax obligation.
• Unfranked Dividends: Unfranked dividends don’t come with franking credits, so they’re taxed differently. Under the Australia/USA tax agreement, Australia caps the tax on unfranked dividends for US residents at 15%. Be sure to notify the share company that you’re a non-resident so they can apply the correct withholding tax; otherwise, you may need to report it later your tax return.
• Reporting in the USA: The USA considers dividends from Australian shares as taxable income. However, you may be able to claim the franking credit or tax withholding as a foreign tax credit, which reduces your US tax bill.

Inheriting Australian Shares

Australia doesn’t have an inheritance tax. So, when you inherit shares, they’re either valued based on their market price on the date of death or the original cost base paid for the asset. It depends on when the asset was acquired by the deceased. This amount becomes your “cost base,” which you’ll use later to calculate any capital gains tax if you sell the shares.

In the US, while beneficiaries aren’t directly taxed on inherited assets, an estate tax could apply to the estate if it’s large enough. The fair market value on the date of inheritance serves as your cost base for capital gains. 

Buying & Selling Australian Shares

Purchasing shares in Australia as a non-resident doesn’t trigger any immediate tax consequences. In usual cases non-residents don’t pay tax on the sale of Australian listed shares.

There is a narrow category of share sales that would be taxable in Australia, however. Generally, these relate to shares in companies that have Australian real estate.

The US imposes a capital gains tax, with different rates for long-term and short-term holdings. You may claim the Australian tax paid as a credit against any US tax due on the same capital gain to avoid double taxation.

Understanding Double Taxation

Australia and the USA have a tax agreement to prevent double taxation. 

This means that while you’ll need to report your income in both countries, you can usually apply tax credits for Australian taxes paid against your US taxes on the same income.

Using The Check The Box Election To Simplify Tax Treatment

For Australian expats with ownership stakes in Australian companies or entities, the Check the Box Election can offer significant tax flexibility and may simplify your US tax obligations.

The Check the Box election is a choice US taxpayers can make to treat an Australian business entity (such as a private company) as either a corporation or a pass-through entity for US tax purposes. 

If you choose to treat the company as a “disregarded entity” (for a single-member entity) or a partnership (for a multi-member entity), the income flows directly to you as the individual taxpayer. 

This may allow you to avoid some of the more complex reporting and potentially double-taxation issues that can arise with foreign corporate ownership.

However, if you opt to treat the Australian company as a corporation, it will be taxed separately, which can sometimes be advantageous but will introduce reporting requirements (such as filing Form 5471). 

Please consult with us further so we can better advise you of your position.

Holding Shares Through a Passive Foreign Investment Company (PFIC)

If your shares are held through a Passive Foreign Investment Company (PFIC), special US tax rules apply, which could increase your tax bill. 

The IRS defines a PFIC as a foreign corporation earning mostly passive income or holding mostly passive income assets.

US shareholders of a PFIC may face complex tax rules. 

To reduce tax, you might consider specific elections like the Qualified Electing Fund (QEF) or mark-to-market options, but these require filing IRS Form 8621.

Controlled Foreign Corporation (CFC) Rules

Under CFC rules, the US may tax you on undistributed income if you own a significant stake in a foreign corporation. If, along with other US taxpayers, you own more than 50% of an Australian company, the company may qualify as a CFC, requiring you to report certain types of income in the US.

Seek Professional Advice

International tax can be complex, and tax rules change often. It’s wise to speak with a CST tax advisor as we provide advice in both US and Australian tax advice.

Whether you have already moved to the United States or are planning to, there are tax implications for Australian expats to consider. 

For example, how does the Australia-US tax treaty apply to capital gains on the realization of assets, and what will your Australian and US tax obligations be? 

These are just a few questions this article will answer for you.

What Is Capital Gains Tax?

To begin, it is crucial to have a comprehensive understanding of capital gains tax concerning Australian expats. 

Capital Gains Tax or CGT is a tax on the profit made from selling an item classified as an asset. In Australia, as in the United States, CGT is complex and different from other taxes. Let us review both Australian and US CGT and then bring them together.

Australian CGT Tax

In Australia, CGT applies to any asset acquired after 20 September 1985. 

Selling an asset for more than it costs means you have a capital gain and must pay CGT. If an asset is sold for less than it cost, this results in a capital loss that can offset against current or future capital gains.

Generally, if an Australian tax resident makes a capital gain and the asset sold was held for at least 12 months, the 50% capital gain tax discount will apply. This results in half the capital gain being included in assessable income and being assessed at marginal rates of tax – which may vary between financial years. See the ATO website for the current individual tax rates. 

There are potential exemptions from the capital gains tax regime, including the main residence exemption.

A person’s main residence, which was moved into as soon as practicable after purchase and continues to be a person’s main residence for the entire ownership period, and on sale, if still a tax resident of Australia, will be exempt from CGT.

In relation to the main residence exemption, new laws passed in 2019, which came into effect 1 July 2020 now mean a total loss of this exemption if the property is sold while the taxpayer is a non-resident of Australia. There are some exceptions known as life events but careful planning is required to ensure the preservation of this exemption.

US CGT Tax

Under US law, the tax rate applied to capital gains depends on the asset’s holding period.

For assets held more than a year, you pay long-term capital gains tax, usually lower than the tax on ordinary income.

For assets held for less than a year, short-term capital gains tax rates apply, equal to your normal income tax rate.

Your income also determines the percentage of CGT you pay in the United States.

Your US CGT rate will depend on your taxable income. It is best to check the IRS website for the most current income thresholds for which CGT rate applies. 

There are also special circumstances under which your capital gains might be taxed at a higher rate. For example, net capital gains from selling collectibles (such as coins or art) are taxed at a maximum 28% rate.

Australia-US Tax Treaty And Its Impact On Capital Gains Tax

For Australian expats in the US, the Australia-US Tax Treaty is particularly important to understand. First signed into law in 1982, the treaty has been updated several times since then to address changes in areas such as superannuation and non-US investments.  

The Australia-US Tax Treaty determines where your tax obligations lie between the two countries. The overarching goal of the treaty is “avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.” 

As we explain in this article, the Australia-US Tax Treaty, allows the tax paid in one jurisdiction to be claimed as a tax credit in the other jurisdiction, in the event that the income is assessable in both.  

For example, if the US sourced income is first taxed in the US and the income is then assessed in Australia, the tax first paid in the US will be taken up as a foreign tax credit against the tax assessed on the income. If the foreign tax credit covers the Australian tax, then any excess foreign tax credits are lost. If there is a shortfall after the foreign tax credit is applied to the assessed Australian tax, then extra tax will be required to be paid.

Tax Obligations When Selling A Former Main Residence In Australia

Let us look at an example to demonstrate how the Australia-US Tax Treaty affects Australian expats when selling their former main residence. 

An Australian couple moves to the US and lives there for eight years. They have decided to sell their former main home in Australia (purchased in 2015 for AUD1,000,000 and now worth AUD3,000,000).

Australian Tax Considerations

This couple would be classified as foreign residents and would not qualify for the CGT main residence exemption. As such, they will pay Australian CGT tax on the AUD2,000,000 (AUD3,000,000-AUD1,000,000) capital gain. 

However, if this Australian couple moves back to Australia and are considered residents for tax purposes and they reestablish the home as their main residence, depending on the length of their absence from Australia and whether they rented the property out or left it vacant, will determine whether a full or partial main residence exemption exists.

This example makes it clear that planning the timing of the sale of your former primary residence can and will have material tax implications. With that in mind, it is critical to get professional tax advice to optimize any potential or upcoming CGT liabilities.

It is important to note Australia also offers certain life event exemptions if they occurred during the time this family lived abroad, which could make them eligible for the CGT main residence exemption. 

The life events this includes are:

• You, your spouse, or your child under 18 had a terminal medical condition
• Your spouse or your child under 18 died
• The CGT event happened because of a formal agreement following the breakdown of your marriage or relationship

USA Tax Considerations

Any income earned, including employment income and realized capital gains, is subject to US tax. Australians who have become US tax residents, including green card holders and those in the US for over 183 days in the last two years, are taxed on worldwide income. This would include the AUD2,000,000 capital gain.

However, the U.S. allows a foreign tax credit for U.S. residents on US taxes owed against any tax already paid to Australia or vice versa. 

The Australia-US Tax Treaty requires that the combined taxes paid in both countries cannot exceed the total tax that would otherwise have been payable in the country where the sale occurs.

Australia And USA Combined Tax Considerations

If the Australian couple decided to sell their former main residence in Australia while being a non-resident for tax purposes, they will need to declare this income on both the Australian and US income tax return. 

As the property is situated in Australia, the first taxing rights reside with Australia. Tax will be applied at non-resident marginal rates on their AUD2,000,000 capital gain.  

For the US CGT, the tax on their AUD2,000,000 capital gain would be calculated depending on their combined income and the CGT rate applicable. 

Thankfully, this couple would not have to pay both the full amount of tax in Australia and the US, as the tax treaty allows taxpayers in each jurisdiction to avoid double taxation. In this case as Australia has the first taxing rights, the US would give the couple a tax credit for the tax paid in Australia and the excess tax paid will be carried forward.

CGT On Selling Shares Originally Purchased In Australia

Let us assume an Australian citizen moves to the US for a period of five years. During this time, they decided to sell the shares purchased while they resided in Australia.

The first aspect to consider is what their choice was when then became a non-resident of Australia. If an Australian tax resident moves to the US and becomes a non-resident and they hold a share portfolio, the choices on cessation of residency with respect to the share portfolio is either to take a deemed disposal or ignore the deemed disposal and treat the shares as Taxable Australian Property. 

A deemed disposal involves comparing the purchase price of the shares to the market value of the shares on the date that residency ceased. Importantly, there is no cash received with respect to this type of CGT happening and so if there is a large accumulated capital gain, then there will be a tax bill that requires payment from other funds. 

If the latter option is chosen (ie. they choose to treat the shares as Taxable Australian Property), any future sale of these shares are connected with Australia and a capital gain or capital loss requires calculation and reporting in the Australian income tax return, even as a non-resident.

Fortunately, the treaty provides a paragraph where future sales of this portfolio can be subject to tax solely in the US. If a choice is made to have future sales subject to tax solely in the US, then the deemed disposal on cessation of residency is ignored.

CGT On Inheritance In Australia

If an Australian citizen has lived in the US for 15 years and inherits an investment property and shares, what are the tax implications in both Australia and the US?

Inheriting Property

The original property was purchased for AUD500,000 and has a current market value of AUD2,500,000. If the property was sold on when inherited, there will be a capital gain of AUD2,000,000 (AUD2,500,000-AUD500,000). As Australia has the first taxing rights, tax will be applied at non-resident rates.

If they had no other Australian sourced income for the year in which the property was sold, tax on the capital gain of AUD2,000,000 would be AUD875,350.

The USA CGT tax on their AUD2,000,000 capital gain would be calculated depending on their combined income and the CGT rate applicable.

The Australian citizen would not have to pay both the AUD875,350 Australian CGT and US CGT as the treaty allows taxpayers in each jurisdiction to avoid double taxation. In this case, the US would give the person a tax credit totaling AUD875,350.

Inheriting Shares

If they inherit shares, they can choose to have any future sales solely taxed in the US under the Australia-US Treaty.

Get Help Navigating CGT For Australian Expats

There are many intricacies and challenges to navigating tax laws between countries. The information in this article may not cover some variables relevant to your circumstances and as such it is recommended you seek tax advice for your specific situation.

Get insights from our CST Principal and international tax specialist, Matthew Marcarian as he shares his in-depth knowledge of the complexities of living and working as an Australian Expat in Singapore in a podcast episode of Money Side Up with Jarrad Brown and Will Cant.

This podcast episode will highlight the tax and residency obligations in Singapore, preparation for repatriation, and effective tax planning if you have already decided to move or work in Singapore.

To find out more about Singapore Tax for Australian Expats, you may listen to the podcast on Spotify.

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. 

As an Australian expat living in the USA you may have to contend with the impact of taxes on property that you own in Australia or in the USA.

The types of taxes relating to property that you may need to consider include:

• Income taxes
• Capital gains tax (CGT)
• Local taxes such as land tax in Australia or Property Taxes in the USA
• If you inherit property in the USA you may also be subject to inheritance taxes

Since your country of residence will have an impact on how you are taxed for income and capital gains purposes, this article assumes you are a USA tax resident. You can read more about US tax residency in our article ‘Managing Dual Tax Residency as an Expat‘.

Australian Property Taxes

Once you cease to be an Australian resident for tax purposes the taxes you pay on income generated from Australian owned property changes, in potentially significant ways.

Income Generated From Your Property

As a non-resident for Australian tax purposes, any income generated from Australian real property will need to be declared and taxed in your annual tax return on a non-resident basis. This means there is no tax free threshold and your income is taxed at foreign tax rates.

When you lodge your Australian tax return, any tax paid to the Australian Taxation Office (ATO), can be claimed as a tax credit in your USA tax return.

This will apply to any property you retain in Australia as an investment property, or any new property you invest in that is located within Australia.

Changes To The Way CGT Applies When You Move To The USA

Your Main Residence

As an Australian tax resident your main residence is exempt from capital gains tax (CGT).  However, when you move overseas and become a non-resident, this exemption ceases to apply, except in limited circumstances. 

If you have already moved to the US, but intend to return to Australia at some point, your main residence exemption will again be accessible, but only on a pro-rata basis, as long as you are once again an Australian resident at the time you sell your former main residence.

CGT Discount

Australian residents are ordinarily given a 50% CGT discount on assets that are sold after 12 months of ownership. This discount is not available to foreign residents for assets acquired after 8 May 2012. For any property that you acquired after this date you will only be able to utilise the 50% CGT discount on a pro-rata basis for any period that you were an Australian resident.

Note that the discount cannot be applied for any period of ownership where you are or were a non-resident. This means that even if you return to Australia as an Australian tax resident, you will be unable to apply the CGT discount for your time as a non-resident.

Land Taxes

As land tax is applied on a state-by-state basis, the rules and calculations for this tax will vary depending on the location of your property.

It is important to note that some states apply a foreign surcharge on the taxable value of land. This means that your land tax costs may be more expensive while you are a non-resident of Australia.

Transfer Of Property (Stamp Duty)

When you purchase property in Australia you are subject to stamp duty on the value of the property. Stamp duty is applicable on a state level which means that the assessment criteria and rate of calculation, including any exemptions or reductions, varies between states.

Declaring Australian Sourced Property Income

You will need to declare any income you earn from your Australian investment property on your US tax return. You can also claim a credit for any tax paid on the income to the ATO. 

USA Property Taxes

The USA has a lengthier range of taxes and a generally more complex tax system. This is because taxes may be applied on a Local government level, as well as State and Federal levels. With the USA being a much larger country than Australia, taxes can be quite complicated.

Income Taxes

If you hold investment property in the USA you will be taxed on the income generated from renting the property. Unlike Australia, income is taxed on both a Federal and a State level in the USA. This means you are required to lodge both a Federal and a State tax return, unless you are in a state that does not apply income tax.

Capital Gains Tax

The US has a Capital Gains Tax regime that is similar to Australia’s Capital Gains Tax regime.

There are exemptions for primary residences, provided certain conditions are met, and long-term capital gains, defined as assets that are owned for more than a year, are taxed at a preferential rate.

Whereas Australia gives a flat 50% discount after 12 months of ownership, the US applies a progressive, preferential rate of tax which depends on your total taxable income. The rate of tax that is applied to long-term capital gains may be 0%, 15% or 20%.

Local Property Taxes

Property Taxes are imposed by Local governments, which means they vary widely depending on the location of your property. The Local governments that impose these taxes includes counties, cities, and school districts.

The closest comparison in Australia would be land tax. However, while land tax in Australia is assessed on just the value of the land, Property Tax in the USA is assessed on the overall value of the home, including both the land and the property structure. Also, while Australians typically find that their main residence is exempt from Land Tax, US property owners are usually subject to Property Tax, even on their main residence.

The assessed value of your property will determine how much property tax you are required to pay, and this assessment is periodically reviewed, including when there are significant changes made to the property. Assessment is based on a unit known as “a mill”, which is the equivalent of one-thousandth of a dollar.

Some jurisdictions offer exemptions or deductions that can reduce your property tax liability. Exemptions and reductions may cover factors such as the property being your primary residence, or personal factors, such as age, disability, or veteran’s status.

For states that have a “homestead exemption”, Property Taxes are reduced on your main residence. Most states allow between $5,000 and $500,000 of your main residence to be exempt from Property Tax, with larger exemptions for married couples or joint owners. Conversely, some states do not have this exemption at all.

These taxes are ordinarily due annually or semi-annually, depending on the jurisdiction. Penalties and interest can apply for late payments, so it is important to be aware of your local property tax requirements.

Transfer Taxes (Conveyance or Deed Taxes)

When you transfer property between one person or entity, to another, you will also be assessed for transfer taxes, otherwise known as conveyance or deed taxes. Since transfer taxes are administered by the Local government, who pays these taxes, and how much they are, varies significantly between States, and sometimes even between counties within a State. Transfer taxes may be payable by the seller, the buyer, or both.

Estate and Inheritance Taxes

Unlike Australia, most States of the USA have a specific estate and inheritance tax.

Estate taxes are levied on the total value of a deceased person’s estate, before it is distributed to the beneficiaries of the estate. Conversely, inheritance taxes are imposed on the heirs who take ownership of the assets.

These taxes are also applied on a State level, which means the rules and tax rates can vary significantly, and not all States impose them.

Australian Tax Resident

Note that there may be different outcomes if you only are living in the USA on a short-term basis and remain an Australian tax resident instead of becoming a US resident.

It would also mean that you are required to lodge a US tax return as a non-resident. You would then lodge an Australian tax return as a resident, declaring worldwide income, including the foreign income and foreign tax credits from the US.

Understand Your Property Tax Obligations

Taxes on Property, from Property Taxes imposed on ongoing ownership of property, through to taxes on rental income from investment property and CGT, can be extensive. When you are contending with holding property overseas and required to deal with international taxes, it can be even more complex.

Since tax legislation can vary significantly, even between States within the same country, and laws are often adjusted and updated, it is important that you always seek the most up to date tax advice for your situation. 

When you live and work solely in one country, tax residency is straightforward. However, if you are living away from your home country or living between multiple countries, then determining tax residency is complicated.

One of the difficulties in determining tax residency is that the laws applied to residency differ in each country. This means you may simultaneously meet the residency requirements in multiple countries within a given tax period. Alternatively, if you live a particularly transitory life, it may be difficult to identify primary residency.

Note that tax residency is different to citizenship or visa residency. This article discusses what you need to know about tax residency.

Why Residency Matters

As each country has their own rules for taxation, it is important to know which country has taxation rights over you as an individual resident. This is why residency is such a foundational concept.

Being a tax resident of multiple countries has potential implications on how your worldwide income is taxed. Generally, your country of residence has primary taxing rights over your income. It also raises double taxation concerns, with competing tax jurisdictions aiming to potentially tax the same income. As countries sometimes tax the same income, a dual tax resident could face significant tax consequences. For this reason, tax treaties between countries exist to help resolve conflicting taxation rights, including determining tax residency.

As this can be a particularly complex issue it is important to ensure that you consult with qualified tax professionals who are familiar with the tax laws of each country. The following information provides a general overview of the potential tax consequences of being a tax resident in multiple countries.

Taxation Rights

Once residency is determined, your country of residence will have the primary taxing rights. Income that is taxable from other sources will be taxed as income earned by a non-resident.

Double Tax Agreements (DTAs) between countries cover a range of factors to help mitigate double taxation issues, including who has primary taxing rights of specific types of income and can include limitations on the taxing rights of the country where the taxpayer is a non-resident.

For countries that tax on a territorial basis, the country of residence might only legislate taxation over income derived from the country of residence, or foreign income that is remitted into the country.

However, countries that tax on a worldwide basis assess all income earned by the individual, regardless of the source of income.

In either case, DTAs, and other tax relief provisions help alleviate the impact of being taxed in multiple countries. This typically means that when you pay foreign tax on foreign sourced income, your country of residence will count this tax towards the tax they assess on this income.

Tax Residency

As each country has its own rules for determining residency, your first step is working out whether you are a resident in each country that you are connected to. To give an example of how this works we consider the tax residency rules of Australia, Singapore, the USA and the UK.

Tax Residency In Australia

How Residency Is Determined

There are a number of tests used to determine residency in Australia, which are essentially designed to determine whether Australia is your home. This means that you are an Australian tax resident if you reside in Australia, or intend to reside in Australia for a significant period of time, and you have a permanent home there.

If you are an Australian permanent resident who is living and working overseas on a temporary basis, you may still be considered a tax resident of  Australia. If you have not established a permanent place of abode outside Australia, then your Australian tax residency will continue. A permanent place of abode is a place where you live and consider your home. This means you may still be considered an Australian tax resident even if you are not physically present in Australia for a given tax year. Individuals who are not Australian citizens may also remain Australian tax residents if they travel overseas for short periods of time, while maintaining their home in Australia.

In an income tax year where you become or cease being a resident you will be considered a part-year tax resident.

Income Taxes as a Resident

Australian tax residents are assessed on worldwide income. This includes all forms of income including capital gains.

Tax Residency In Singapore

How Residency Is Determined

In Singapore you are a tax resident when you are physically present in Singapore for at least 183 days in a calendar year.

Income Taxes as a Resident

Singapore tax residents are typically only required to pay tax on Singapore sourced income, or foreign income that is brought into Singapore. Singapore does not tax capital gains.

Tax Residency In The USA

How Residency Is Determined

In the USA, all US citizens and dual citizens are required to lodge a tax return to declare their worldwide income, regardless of their tax residency.

Non-citizens are tax residents if they hold a Green Card that legally allows permanent residency.

Tax residency is determined by a physical presence test. This test requires physical presence in the USA for at least 31 days in the relevant calendar year, after being present for a specific number of days totalling at least 183 days over the preceding two years.

Income Taxes as a Resident

Both citizens and tax residents of the USA are taxed on their worldwide income. Citizens are taxed on worldwide income even if they no longer reside in the US and do not meet the residency test. There are some foreign earning exclusions for individuals who meet specific requirements.

Tax Residency In The UK

How Residency Is Determined

In the UK you are a tax resident under the Statutory Residence Test. This test considers a range of factors including the number of days you are present in the UK, your connections to the country, and other relevant criteria.

The UK has an automatic overseas test. This means if you spend less than 16 days in the UK (or less than 46 days if you have not been a UK resident for the previous 3 tax years), or you are working abroad full-time and spend less than 91 days in the UK, then you are a non-resident.

There are three automatic resident tests:

1. You are present in the UK for at least 183 days.
2. Your only home is in the UK for at least 91 days in a row, and you visited or stayed for at least 30 days in the tax year.
3.  You worked full time in the UK for any period of 365 days and at least one of those days falls in the tax year you’re checking.

Where you do not meet either automatic test the “sufficient ties test” will determine if you are a resident. This test considers your UK connections, including family, accommodation, work, and physical presence, over a number of years.

Income Taxes as a Resident

UK tax residents are taxed on their worldwide income. However, non-UK sourced income may be exempt from UK taxation in certain circumstances.

Dual Residency

As can be seen from the various residency tests of just these four countries, there is variety in how residency is determined and the tax implications this could lead to. Given the variation in tests, you could easily be considered a resident of multiple countries over a single tax year.

When an individual is a tax resident in multiple countries the next step is to determine if there are tie breaker rules contained in a DTA. These rules provide guidance on determining an individual’s primary place of residence.

Residency Tie Breaker Rules

Most countries adopt the Mutual Agreement Procedure, specifically Article 4 of the OECD Model Tax Convention, to resolve dual residence situations. Accordingly, there is a fairly standard set of tie breaker rules across various DTAs. These tiebreaker rules are outlined as follows:

1. Permanent Home – Where you have a permanent home in one country but not the other, you will be a resident of the country where your home is located.
2. Centre of Vital Interests – The country in which you have closer personal and economic connections will be your country of residence. This may include family and personal ties, social and economic activities such as work and club memberships, and where you keep your main assets.
3. Habitual Above – Where neither of the previous tests assist, the country where you regularly abide or reside in will be your country of residence.
4. Nationality – Where none of the previous tests assist you will be a resident of the country in which you are a national.

In most cases an individual will be able to determine their residence using one of these tie breaker rules.

When it comes to Australia, Singapore, the USA and the UK, most of these countries adopt comprehensive DTAs between one another, in which Article 4 of the OECD Model Tax Convention is essentially utilised. This includes the DTAs between the following countries:

• Australia and Singapore
• Australia and the USA
• Australia and the UK
• Singapore and the UK       
• The UK and the USA

Notably, there is no DTA between Singapore and the USA. This means that dual residents of Singapore and the USA will need to rely on the taxation rules and access to tax relief options in each country in order to avoid double taxation.

Dual Tax Residents

In very rare cases an individual may have sufficient ties to multiple countries in which they are either not a citizen, or in which they hold dual citizenship, leading to a situation whereby they may not be able to effectively use tie breaker residency rules to accurately determine their country of residence. This creates a complex situation wherein no country has clear priority for determining tax residency and a decision regarding residency is subjective.

This situation could theoretically lead to an individual being subject to taxes being assessed on their worldwide income in multiple tax jurisdictions. The Mutual Agreement Procedure contained in some DTAs enables a taxpayer to request the competent authority in one country to engage with their counterparts in another country to resolve double taxation.

Managing Dual Tax Residency

In summary, determining residency is an important factor because it determines which tax jurisdiction has primary taxation rights.

DTAs exist to help mitigate the risk of double taxation by providing tie breaker rules in determining residency and placing restrictions or limitations on taxation rights over certain types of income, as well as providing tax relief through the recognition of foreign tax credits.

Where no DTA exists, or where an individual’s residency cannot be determined, other provisions are required to mitigate the impact of double taxation. 

Tax residency can be a very complex area and it is recommended you seek specialist international tax advice for your particular situation. 

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.

Many private clients heading to abroad may already have a trust in their home country or a 3^rd Country.

Historically trusts have been attractive vehicles because they offer people the potential of protecting their wealth from external attacks, but it can also help lower the burden of taxation on a family group.

For those who do not have a trust as yet but who are considering establishing a trust, a great deal of thought and planning needs to go into it.

We make sure our clients understand the four golden rules of setting up a trust:

1. Ensure the bank or financial advisory firm managing your money does not own the trustee company that will be the trustee of your trust. This prevents a conflict of interest.
2. Understand how you can unwind the trust arrangement.
3. Recognise that long-term solutions require tax contingency planning before you sign on the dotted line. As your residency can change, so can your tax position.
4. Make sure you understand how you can access trust income and/or capital to pay taxes that may become due on the gains of the trust.

Before delving into some further issues associated with trust management, I will cover just a few central points about how trusts work for those who may not have worked with trusts.

How Trusts Work

A trust is an arrangement whereby a trustee has a fiduciary obligation to deal with property over which they have control for the benefit of one or more beneficiaries who are able to enforce such an obligation.

Beneficiaries may be individuals, corporations, or indeed other trusts (such as a charitable trust).

All trusts have a trust deed. 

At a high level, this is a document that outlines the rules that the trustee must follow in relation to the property they control.

Common objectives for utilising trusts are to protect assets and ensure that beneficiaries are deable to benefit financially from the trust in a manner that suits the family group and in accordance with the wishes of the settlor of the trust.

The discretionary trust is the most common trust used by business owners and investors. 

They are generally set up to hold family and/or business assets for the benefit of providing asset protection and tax-planning benefits for family members.

The Trust Deed: Its Importance

The trust deed is the most important document of a trust as it establishes and defines terms and conditions upon which the trust must be operated and managed.

More specifically, the trust deed sets out the beneficiaries of the trust, as well as the end date of the trust and the conditions upon which the trustee holds the property for the beneficiaries.

Actions undertaken outside the provisions set out in the trust deed can be deemed by a court of appropriate jurisdiction to be null and void. 

The implications of an action being null, and void can reach further than the act simply being treated as if it did not occur.

An invalid act of a trustee can result in unwanted taxation implications for the trustee, and a breach of the trustee’s duties can lead to personal liability for damages or alternatively unwanted consequences for beneficiaries.

The best approach in dealing with trust management and planning is to treat every trust deed as unique and therefore refer to the provisions in the deed prior to taking any action.

How Are Trusts Taxed?

While a trust is regarded as a taxpayer in some countries (e.g., Australia), in other countries this is not the case. 

In some countries, the beneficiary is taxed on gains accruing in the trust; in others, it is the original settlor who suffers the tax burden.

Changing Residency With a Trust

One aspect of trust management and planning to get right when you have a trust is to ensure that assets are not unwittingly ‘exported’ into certain tax jurisdictions when you change your tax residency status.

If you want to set up a trust, then before you move to a particular country it is important to understand how a trust determines its residency status under the laws of that country.

In Australia, a trust is regarded as a tax resident of Australia if one of the trustees is a tax resident of Australia. 

However, in other jurisdictions, the concept of central management and control of the trust is used to determine the residency status of the trust.

It is important to work through all the residency aspects likely to impact your trust when you move around with an existing trust.

The key point to note is that it can be a useful exercise to transfer assets from an individual to a trust prior to changing residency and heading overseas. 

However, like most things, this strategy has its pros and cons.

Trusts Heading Overseas: Residency Determination

In the Australian context, where an individual trustee of an Australian trust changes residence, then, often, the trust will also change its residence.

In these cases, you need to make sure that when the trustee changes its residence, the tax consequences are identified.

Before you depart you need to consider whether it is beneficial to you and your family for the trust to stay a resident in your home country where it was established or if it makes sense for the trust to move with you to your new country.

If the immediate and ongoing tax consequences of keeping the trust in its particular form are not advantageous to you then we can discuss alternative strategies with you.

Such strategies may include replacing the trustee of the trust with a company that is domiciled in the jurisdiction to which you are moving and make the trust subject to the laws of that jurisdiction. 

In other situations, it may be more appropriate for a replacement trustee to be appointed in a third jurisdiction and have the trust reside in a 3^rd country.

The purpose of the discussion here is to highlight the fact that planning for a departing trust is very important.

Our approach to this area is to recognise that trusts are long-term family vehicles, and just because a client may move to a new country, it does not mean that they should have to wind up their trust and forgo all the benefits that it has provided them.

Given our international tax and trust knowledge, we will be able to help our client make important decisions such as this.

Trusts Arriving Abroad

Moving around the world while being in control of trusts is complicated and should not be done lightly.

Arriving in another country with a trust and no plan is a recipe for disaster.

Where a new individual client has changed their residence and they are the trustee of a foreign trust, it is clear that this trust is also likely to become a resident of the arrival country.

In other cases, even if the client ceases being the trustee before they change their residence specific jurisdictions tax income on ‘pre-migration transfer of assets’ to foreign trusts. 

It is also likely that the trust deed may need a review as some of its definitions and terms may have no meaning in the new country the trust is being exported to.

Even if the trust is residing in a 3^rd country, a review of the trust deed from the perspective of the laws of the new country is warranted.

Other concepts, which might be recognised abroad, such as ‘community title’, might be used in the trust deed, but these concepts might have no application in the arrival country.

The arriving trust may still have reporting obligations in the country in which it was established. 

It may also be the case that there are foreign protectors or other people who have an ongoing role in the management of the trust.

You should consider how they are affected in terms of reporting based on the country you are moving to.

This is particularly important if the arriving trust has a business or significant assets.

Often, the cost base of trust assets must be understood on the day the trust first enters a new country.

Usually this will be the market value of the assets on the day of the trust’s arrival, but not always.

While your move abroad is an exciting time for most people and full of challenges and new opportunities, considering the tax issues of how your trust would be affected by your move is essential.