As an Australian moving to Singapore there are a number of differences that you should be aware of in relation to taxation.

Having an idea of what to expect will help you to organise your move and understand your tax position so that you are more financially prepared.

You can download our guide: Moving to Singapore, here.

Taxation Basics

The most fundamental difference between Australia and Singapore is that in Singapore there is no CGT in Singapore and they do not generally tax investment income. Singapore also has a much lower rate of tax in their highest tax tier, which is one of the appeals for Australians considering a move to Singapore on a permanent basis.

Other key differences between Australia and Singapore’s taxation system include:

• Financial year
• Terminology used
• What constitutes allowable deductions
• Which income is taxed
• How tax is paid. 

For instance, while you are taxed on your worldwide income as an Australian resident, Singapore only taxes residents on income that is actually sourced in Singapore. Read on to see some of the basic differences in taxation from an employment perspective.

	AUSTRALIA	SINGAPORE
Financial Year	1 July to 30 June	1 January to 31 December
Taxation Body	Australian Taxation Office: ATO	Inland Revenue Authority of Singapore: IRAS
Individual Tax Rate	Progessive rate from 0% to 45% for incomes exceeding AUD$180,000.Non residents are taxed a minimum of 15% and up to 45%.	Progressive rate from 0% to 22% for incomes exceeding SGD$320,000. Non residents are taxed between 15% and 22%.
Taxed on	Taxable Income that is calculated by taking in your worldwide income less allowable tax deductions.	“Chargeable” Income that is sourced in Singapore.

Employment Taxation

As an Australian employee you would be familiar with the PAYGW system.

Pay As You Go Withholding ensures that your estimated tax is paid directly to the ATO through the year. Then, at the end of the year, you lodge your tax return and are either required to pay any additional tax owed, or are refunded any excess tax that the ATO received through the year.

Singapore is the opposite. All of your wages will be paid to you in full as an individual. Then you are required to pay your income taxes in full at the end of the tax year. This means you need to be careful to track and keep aside money to pay your tax bill. In your second year as a resident of Singapore you can pay your tax for the first year using a monthly instalment system.

You will also be used to working in a system where you can claim work related deductions to help bring your tax obligations down. In Australia any work expenses that your employer does not cover can be paid for yourself, then claimed as a deduction that reduces your taxable income. Singapore does not allow employees to claim tax deductions. This means you will want to be extra sure that your employer is covering your work related costs.

Another system you will be familiar with as an Australian worker is Superannuation. Your Australian employer is required to make superannuation contributions to your superannuation fund in order to fund your eventual retirement. The accrued superannuation balance is only able to release your superannuation to you in limited situations, such as retirement.

Singapore also has a retirement fund, the Central Provident Fund (CPF). However, this fund does not just serve as a retirement cash payout. Instead, it is intended to help save for housing and healthcare in retirement. Unfortunately for Australian expats, the CPF is not typically available. This means you may need to continue to build an Australian superannuation fund to plan for your own retirement.

	AUSTRALIA	SINGAPORE
Tax on Wages	Managed through the PAYGW system where tax is withheld by your employer and you typically receive a small refund/have a small payable to adjust the total tax required for your actual income over the year.	You are paid your total wage income. When you lodge your tax return you are required to pay your income tax obligations in full at that time.
Work Deductions	You can claim deductions as an employee.	You cannot claim deductions as an employee to bring your taxable income down.
Super Funds	Employees have Superannuation Guarantee payments paid into their personal super fund at 9.5% of their wages, with capped limits. All employees over 18 and earning more than $450 a month are paid superannuation.  Temporary residents or visitors who depart Australia can have their Australian Superannuation paid out or rolled into an overseas fund. If this isn’t organised within 6 months their superannuation money will be transferred to the ATO as unclaimed super money.	Singaporeans and permanent residents are covered by a Central Provident Fund (CPF) that helps provide for retirement, including housing and healthcare. While individuals contribute to their own fund, employers contribute 17% of wages paid, loved ones typically contribute, and the government also provides top-ups and incentives.    Only Singaporeans are eligible for the CPF. This means Australian expats may need to maintain a local Australian super fund instead, bearing in mind that contributions could be subject to tax in Singapore.

Other Taxation Matters

Employment income is not the only source of income. While Australians are taxed on a range of income types, the Singapore tax regime is not the same.

Capital Gains Tax

Australians are required to pay tax on the sale of most capital assets, and in some situations they are even taxed on the deemed realisation of assets. Certain concessions, such as the 50% discount where the asset has been held for more than 12 months, can be applied. Singapore does not have a capital gains tax regime at all.

Goods and Services Tax (GST)

GST is a tax that applies in both Australia and Singapore on the sale of goods and services. GST is 7% in Singapore, whereas it is 10% in Australia. However, this doesn’t necessarily mean you end up paying less GST in Singapore overall. While Australia has a large range of supplies that are exempt from GST, including essential goods and services, Singapore only has a limited number of exempt supplies.

Investment Income

In Australia you are taxed on investment income at your own individual marginal tax rate. However you are also typically able to claim tax credits for any tax that the company has paid on income that is distributed to you.

In Singapore a company pays taxes on its own chargeable income. This is the final tax paid, and investment income that is passed on to shareholders is not taxed in their hands. (If the investor is a non-resident, they would only be liable for non-resident taxes in accordance with their country of residence).

Running a Company

If you plan to run a company in Singapore there are a wide range of requirements that you need to understand in terms of setting up and running the company. Not the least of these is that, from a taxation perspective, the first three years of operation are tax free for the first $100,000 of chargeable income. After this the company tax rate is only 17%. In Australia the company tax rate is currently 30%.

	AUSTRALIA	SINGAPORE
Capital Gains Tax	Taxable Income. Capital Losses are quarantined and can only be offset against other capital gains. If you cease to be an Australian resident you will be deemed to have disposed of any GST assets that are not Australian real property for Australian tax purposes.	No Capital Gains tax.
GST	10% There are an extensive number of exemptions including financial supplies, residential rent, and basic essentials such as raw food and medicine.	7% Exemptions include financial services, digital payment tokens, sale & lease or residential property, and important and supply of investment precious metals.
Investment/Dividend Income	Individuals declare the cash and franking credit that they are distributed. The franking credit counts as a tax credit and the ATO will refund any difference between the franking credit (which is at the company tax rate) and the individual’s tax rate, or the individual is required to pay additional tax if their marginal tax rate is higher than the company tax rate.	Taxes paid by companies are the final taxes chargeable on income. Shareholders are not taxed on dividends they receive from resident companies.
Company Tax Rate	30%. Small business entities (under 2 million turnover) are taxed at 28.5%.	17%. For the first 3 years, newly incorporated companies are given a full tax exemption for the first $100,000 of chargeable income.

Tax Differences between Australia and Singapore

While there are some commonalities in the foundation from which the Australian and Singapore systems have grown, there are a lot of differences. These differences range from terminology to timing, what income is taxed, at what point it is taxed, and the tax rate.

As outlined above, there is an appeal in being taxed under the Singapore regime. For instance, the tax rates are lower, there is no CGT, and investment income is not typically tax in the hands of the individual it is distributed to. If you are considering making this move, ensure that you fully understand your personal situation and have a good understanding of whether you would be a Singapore tax resident. It is always important to speak to a professional advisor for a more detailed assessment of your specific situation. 

Discretionary trusts provide flexibility in relation to revenue and capital distributions. This is one of the reasons they are a common choice for families. However, when there is a potential foreign beneficiary, the discretionary trust can find itself facing additional costs in the form of foreign surcharges. Foreign surcharges are additional fees that various state jurisdictions impose on the duties and/or land taxes over and above the original impost.

The 2020 changes to foreign surcharge requirements mean that administration for Australian discretionary trusts became a lot more complex.  

Foreign Surcharges are subject to a complex array of rules

Each state and territory has its own rules for determining when a beneficiary is a “foreign person”. They also have their own rules for governing foreign surcharges, with some states even imposing clawback rules in the event a beneficiary later becomes a foreign resident. For this reason it is important to obtain specific advice for the relevant state or territory when a discretionary trust intends to purchase property. 

Ultimately, any discretionary trust that is determined to have foreign beneficiaries will be required to pay both the ordinary state duties and/or land tax, as well as the relevant foreign surcharge. For this reason most discretionary trusts aim to avoid having foreign beneficiaries. Where this is not practical for the purpose and primary aim of having the trust in the first place, the trustee must be aware of how having foreign beneficiaries will impact their financial considerations.

Changes for NSW discretionary trusts that own residential property

On 24 June 2020 the State Revenue Legislation Further Amendment Act 2020 came into effect in NSW. This Act changed the foreign person surcharges for both land tax and duties where residential land located in NSW was owned by a discretionary trust. 

The change means that a trustee is deemed to be a foreign person unless the trust deed explicitly excludes all foreign persons from being beneficiaries or potential beneficiaries. This clause in the trust deed must be irrevocable. This means an individual beneficiary who has children overseas, who are defined as foreign persons, would not be able to amend the deed to include their foreign child as a beneficiary. 

Non-compliant trusts, i.e. trusts that do not exclude both foreign persons, and potential foreign persons, as beneficiaries, will deem the trustee to be treated as a foreign trustee. The trust then becomes subject to the foreign surcharge rate of duty. 

In NSW the rate of foreign surcharge is presently 8% of dutiable transactions relating to residential land while for land tax the rate is 2%. These charges are payable in addition to ordinary rates. 

Retrospective Impact of the change in NSW

One of the most concerning things with the change in NSW is that the law applies retrospectively from 21 June 2016 for dutiable transactions, and from 2017 for land tax surcharges. 

If you don’t have any foreign beneficiaries then you have until 31 December 2020 to amend your trust deed to irrevocably remove both foreign persons and potential beneficiaries who could be foreign persons, if you wish to avoid the foreign surcharge. 

If you have previously not had foreign beneficiaries, but you do not wish to amend the trust deed because you will, or potentially will, have foreign beneficiaries, then you will need to consider if you are liable for any retrospective duties and land taxes.

Victorian changes

Victoria has also implemented some changes as of 1 March 2020. While these changes essentially have the same impact as in NSW, the law does not apply retrospectively.  

What should you do if you have a discretionary trust with property?

If you have a discretionary trust that holds property, or is intended to hold property then you need to assess the importance and likelihood of having beneficiaries who are foreign persons, or could potentially be foreign persons. This includes assessing your current trust deed, evaluating the goals and purpose of the trust, and reviewing the financial impact of having, or potentially having, foreign beneficiaries.

This may result in a change to your trust deed in order to intentionally exclude any foreign, or potentially foreign beneficiaries, or it may involve a change in your investment strategy. 

On December 5th 2019 the contentious law denying non-residents the Capital Gains Tax (CGT) main residence exemption was passed.

This means that the update we previously provided on this legislation is still in force. If you are no longer an Australian resident, or are permanently moving overseas, and you still own a property that was your main residence in Australia, then you need to know what this means.

Existing Non-Residents with Main Residence Property In Australia

Did you purchase your Australian main residence before 9 May 2017? If you did then you only have until 30 June 2020 to sell your property if you want to claim the CGT main residence exemption.

After this date non-residents will not be able to claim the exemption. Basically this means you will be assessed on the full capital gain.

On the other hand, if you plan to return to Australia in the future then you may still be able to claim the exemption. If this is the case then you can wait to sell your former main residence once you return to Australia. Once you are a tax resident again then you will be assessed as an Australian tax resident. This means the law will again allow you to claim whatever main residence concession you would ordinarily be entitled to. Given the rise in Australian property prices over the last decade, this change could see an Expat caught unaware, being exposed to capital gains tax of several hundred thousand dollars (if not more), depending on the situation.

For a more detailed look at what the law entails please refer to our “Update on CGT Main Residence Exemption for expats” post.

Seek Tax Advice

The change in law has the potential to significantly impact non-residents. While you can get a general overview from the information provided in our blog, it is important that your specific situation be assessed by a tax specialist. This is important because your individual situation will be dependant on many variables that can’t be adequately covered in a general blog. A personalised assessment will ensure that you understand your options and can make the best decision for your situation.

Update: Since publication of this post the Bill has passed and is now law. The law passed is the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019. ) It was passed with no further amendments. This means non-residents will not be able to claim the CGT main residence exemption from 1 July 2020. The scenarios below currently apply under the new law.

For the past few years Australian expats have been waiting to see if the axe will drop on their ability to claim the capital gains tax (CGT) main residence exemption.

The current main residence exemption allows individuals to claim an exemption on paying CGT when they sell the home that they have been living in. Under the normal CGT rules, an individual may continue to claim their former home as their main residence for up to 6 years of absence. This applies unless and until the homeowner purchases and moves into another house that becomes their main residence in Australia.

The new measure has been in the works since the 2017-2018 budget, with non-residents potentially becoming ineligible to claim the main residence exemption since May 9th 2017.

Main residence exemption removed for non-residents in new Bill

The shortcomings of this bill continue to be of concern. After the Bill lapsed in April 2019, we have waited to see whether it would reappear. The hope was that a new Bill would be rewritten in a way that was fairer to taxpayers.

Unfortunately it was reintroduced on the 23rd of October 2019 in largely the same form. Like the original bill, it applies retroactively and allows no consideration for long term Australian residents who may end up caught out by the changes.

While many concerns with the original bill remain unaddressed, there are a few changes.

These changes have extended the transitional measures and added in some compassionate exceptions. The transitional measures ensures that existing foreign resident home owners have some time to sell their main residence under the existing rules. Previously they had until 30th June 2019. Under the new Bill they now have until 30th June 2020 to sell under the existing CGT rules. The additional exceptions that the revised Bill introduced means that there are now limited situations in which the main residence exemption may still apply for foreign residents. 

So, if you’re an expatriate with a former main residence in Australia you should consider now what strategy you wish to take. It’s time to consider if you need to sell while you can access the existing CGT exemption.

Summarised below is an outline of what these new laws could mean for you and what you can do about it.

What Happens If I Hold Onto My Australian Home When I Move Overseas?

Once you’re a foreign resident then any Australian property home you own is treated as a CGT asset. You are no longer able to apply the main residence exception that is available to Australian taxpayers.

Basically this means you will be liable for full CGT on any profit from the sale of the property. This applies even if you lived in the home for 20 years before becoming a non-resident. Since the main residence exemption can potentially save you tens of thousands of dollars in CGT this is a big change for temporary residents and Australians looking to move overseas.

As mentioned, there are limited situations where non-residents may still access the main residence exemption. This includes the transitional provision that allows you to sell your main residence under the existing CGT exemption if you sell before June 30th 2020. It also includes concessions that equate to compassionate grounds on the event of death, divorce, or terminal illness.

As a Non Resident Can I Use the CGT Main Residence Exemption When I Sell My former Australian home?

Normally when you satisfy the criteria for claiming the main residence exemption for CGT then you can apply this exemption (in part or in full). However, if this bill passes into law, foreign residents will no longer be able to access the main residence exemption. Well, in most situations.

Let’s take a look at when the exemption may still apply:

1- Did you purchase your main residence before or after May 9th 2017?

If you purchased your property after May 9th 2017 then you’re out of luck. You will not be able to claim an exemption for your principal residence if you sell it while you are a non-resident. That’s because you purchased your main residence after these new measures were proposed.

However, if you purchased before May 9th 2017 (and post 20 September 1985) then you are covered by the transitional provisions. This means you have until 30th June 2020 to sell under the current CGT rules and access the main residence exemption. Wait any longer and the exemption is no longer available if you sell your main residence while you’re a non-resident.

The big drawback of selling after 30th June 2020 is that the main resident exemption will not even apply for the period of time that you lived in the property. That means you won’t even get access to a partial exemption.

2- What If a serious life event happens to you within 6 years of becoming a non-resident?

With the new bill being introduced, there are now some situations where a non-resident may continue to access the main residence exemption for CGT. These concessions only apply if you’ve been a non-resident for less than 6 years. As a non-resident you may still be eligible for the main residence exemption if one of the following life events happens:

• You, your spouse or your child (under 18) get diagnosed with a terminal medical condition.
• You, your spouse or your child (under 18) pass away.
• You get divorced or separated.

Basically, if something unexpected happens within several years of becoming a non-resident for Australian tax purposes, then you may still be able to access the same concessions that Australian residents can. While no one can factor these contingencies into a tax strategy it’s good to know that this exists if the worst happens.

3- Will You Become An Australian Resident Again?

If you come back to Australia and become an Australian tax resident, then the main residence exemption is available to you again under the normal rules. This means you will have the opportunity to apply the CGT main residence exemption, either in part (if the property hasn’t exclusively been your main residence) or in full. Keep in mind that this only applies if you sell while you’re an Australian tax resident.  

This means that if you’re planning to return to Australia then it might be worth holding onto the property so that you can reduce your CGT liability. That’s great news if there’s a chance of returning to Australia to live in your home (or elsewhere) again. Of course, this should not be the only factor to consider when deciding whether to hold onto or sell your former home under the main residence exemption.

What If I Die While I’m a Non-Resident?

You might decide to hold onto your property because you’re planning to come back to Australia. But what if that doesn’t happen?

If you die within 6 years of becoming a non-resident then your estate may still be able to access your main residence exemption. However, when you pass away more than 6 years after becoming a foreign resident then your estate will be caught by the changes and the main residence exemption will not be applicable. That means your estate will be stuck with the full CGT liability.

What Do I Do With My Australian Property Now?

The answer to this is very personal. It depends on your ongoing plans, whether you’re concerned about the tax impact of these legislative changes, what the market is like, and what the best decision is for both your immediate and long term needs.

For instance, selling a property now for a $50,000 profit with no CGT to worry about would still net you less than selling it down the road for a $200,000 profit with a $45,000 CGT liability.

Ongoing income or costs also weigh into your decision, as do any plans to return to Australia down the track. Unfortunately, it also depends on unknown factors, including the unpredictable nature of tax law changes that may happen in the future. As always, it’s important to get tailored advice for your unique situation when considering what to do. Individual situations can involve complexities that extend beyond generic information.

As always, it’s important to get tailored advice for your unique situation when considering what to do. Individual situations can involve complexities that extend beyond generic information.

Our Managing Director, Boon Tan, was recently featured in the Orient magazine (a publication produced by the British Chamber of Commerce in Singapore) discussing the key tax concessions available to Expats in Singapore.

Read the full article.

With the presentation of the 2019 Budget by Treasurer Heng, now is the time to start planning for the preparation of your personal tax return. With that in mind, this article outlines points for expats to consider when it comes time for preparation of your Singaporean income tax return.

The good news is that your Singapore tax return is not going to be hard to do. For many, the process takes 5 minutes and is done online.

Your return is due for lodgement each year by 15th of April. As there is no withholding tax, you will be required to make a payment of your tax liability upon receipt of your Notice of Assessment from Inland Revenue Authority of Singapore (“IRAS”). Alternatively, IRAS does provided for you to pay your tax liability in monthly instalments (interest free) via direct debits from your Singaporean bank account.

Why is tax so simple in Singapore?

The key to the simplicity is the nature of the Singaporean tax system which is a territorial based system.

Singapore only levies tax on income sourced here.

The term “sourced” means income that is generated in Singapore – e.g., employment income, interest paid by a local bank. Foreign income, such as rental income from your principal residence or investment property in your home country, is not taxed in Singapore – even if you bring the funds to Singapore.

Other income generated from interest, dividends, and capital gains on the disposal of assets anywhere in the world is all exempt from tax in Singapore. Besides, there are limited deductions that one can claim as an individual.

Notwithstanding this, here are some of the key concessions that you may be eligible to claim.

Not Ordinary Resident (“NOR”) Scheme and your tax residency

A key concession for expats to consider claiming as an employee based in Singapore is the NOR Scheme.

The NOR Scheme was introduced as an incentive to global firms to use Singapore as a regional base, and to bring talented individuals to the country. Under the NOR Scheme, you can pro-rata your taxable income based on the number of days you have worked outside of Singapore during the year – meaning that your effective tax rate can be reduced to a rate as low as 10%.

You can apply the NOR Scheme to reduce your tax rate by exempting part of your income, which in turn, will reduce the marginal tax bracket you fall into. Note that this is a concession under Singaporean taxation and does not mean that the untaxed income in Singapore is therefore taxable in the country you worked.

To qualify for the NOR Scheme, you must meet all the following criteria:

1. Your taxable income in Singapore must be at least $160,000;
2. Travelled for work for at least 90 days during the year;
3. You are a tax resident of Singapore in the year you are claiming the concession; and
4. Must not have been a tax resident of Singapore for the three years prior to the year in which you are applying the NOR Scheme.

You can claim NOR for the first five years that you are a tax resident of Singapore. If you do not qualify for the Scheme for one year during this period because you did not travel at least 90 days, you will lose one year of eligibility.

To apply for the NOR Scheme, you must lodge a claim each year at the time you file your tax return. Your claim must list the number of days and where you have worked outside of Singapore and must be certified by your employer as being correct.

In years that you qualify but fail to make a claim for the NOR Scheme when you lodge your return, you cannot go back and amend the return to claim the concession.

In the 2019 Budget, it was announced that the NOR Scheme would be stopped as of 31 December 2019. Therefore, the last claims to enter the NOR Scheme will be due with the lodgement of the YA2020 income tax return. Individuals who are already in the midst of their 5-year NOR eligibility period can continue to make the claim post the end of this year.

Tax reliefs

Singapore’s tax system provides tax residents with tax reliefs which reduce your taxable income. You can claim and apply as many reliefs that you are eligible for each year.

Five common tax reliefs that can be applied when preparing your tax return include:

1. Spouse relief
   If you are supporting a spouse who is not working and/or earning less than $4,000 from worldwide sources, you can claim a relief of $2,000.
2. Child relief
   You are entitled to claim relief for supporting a child equal to $4,000 per child regardless of where they live. Each child must be aged less than 16, or if over the age of 16 they must be in fulltime education (not necessarily here in Singapore) and cannot have an annual income of more than $4,000 from worldwide sources. The system recognises stepchildren and adopted children as qualifying for this relief.
3. Life insurance premiums
   You can apply a tax relief of up to $5,000 for the payment of life insurance premiums if your insurance provider has a branch or presence in Singapore. You may, therefore, be able to claim this relief for premiums paid in your home country.
4. Foreign maid levy relief
   If you are a woman working in Singapore and employ a maid which requires you to pay the foreign maid levy, you will be able to claim a relief equal to twice the levy amount paid for one domestic helper.
5. Professional course relief
   Up to $5,500 relief is granted if you enrol into a course, seminar or conference that leads to an approved academic, professional or vocation qualification. The relief is calculated based on the amount spent on fees, tuition, aptitude tests and registration fees incurred.

Donations

If you have made donations during the year to a local cause, you are able to claim a deduction of 2.5 times the amount you donated. To be able to make a claim, donations must be made in cash to the Government or any institution of public character which allows for their donations to be claimed at the 2.5 times rate.

Claiming everything you are entitled to

While the Singaporean tax system is a lot simpler than others around the world, you should speak with a qualified advisor ahead of lodging your personal return and ensure that you claim all the concessions you are entitled to.

About the author

Boon Tan is an experienced Accountant and has been working in the international tax advisory sector for over ten years. Born in Australia with Singaporean roots, Boon relocated to Singapore at the end of 2015.

As an expat living in Singapore, he has first-hand knowledge and experience of what expat families go through to establish themselves in a new city. He regularly draws on his in-depth understanding of the local Singaporean tax system and a network of in-country specialists in expat hot-spots around the world including USA, UK, Asia Pacific, and Australia to provide bespoke tax advice to clients.

Treasure Heng delivered the 2019 Singapore Budget on the afternoon of 18 February 2019. This Budget was the first Mr Heng delivered as the anointed leader of the Fourth Generation of Government leaders and marked the mid-term of the current Government.

At the end of Treasurer Heng’s Budget speech, we were given an outline of the focus for the current and future years on the areas including innovation, defence, infrastructure and community.

Whilst the headlines in the media have been on the expansionary nature of the budget, from an expat perspective there were two significant announcements made in the Budget Speech and annexures which have a direct impact on the expat community in Singapore.

Reduction in the Dependency Ratio Ceiling (DRC)

As an island, the scarcity of land means that Singapore’s greatest assets is human capital. The Singapore Government acknowledged early on of the need to develop human capital and therefore introduced programs and incentives for expats to bring their skills and knowledge to the country so that locals could learn and gain from their experience.

Different classes of visas for workers were introduced – Employment Passes for professionals, Work Permits for semi-skilled workers and S-Passes for technical staff.

As Singapore grew and the quality of its education system (from primary through to tertiary levels) developed, it was clear that the need to “import” a workforce with skills and knowledge could be reduced.

The DRC was introduced to legally cap the proportion of the employees that an employer could fill with foreign workers on Work Permits or S-Passes. Different industries have different requirements and therefore the DRC is set and reviewed regularly to account for economic conditions and the skillset of local Singaporeans.

The 2019 Budget has announced a reduction of the DCR for Work Permits and S-Passes over the next two years for the services sector.

For Work Permits, the current 40% reduced to 38% from 1 January 2020 before stopping at 35% from 1 January 2021. While the DCR for S-Passes will fall from 15% to 13% before capping at 10% over the same timeframe.

The services sector incorporates business services, insurance, retail and wholesale trade, hotels, communication services and the food and beverage industry.

Given that Work Permits and S-Passes have a duration of two years, the structural changes to the workforce will be impacted immediately as the DCR will be taken into consideration during the renewal process for individuals on these passes over the next two years.

Removal of the Not Ordinary Resident (NOR) Scheme

Whilst the quotas for professionals holding an Employment Pass have not been changed, a significant announcement affecting these expats was the removal of the NOR scheme from 31 December 2019.

The NOR Scheme was designed to act as an incentive for multi-national companys to base global or regional roles here in Singapore. Under the NOR Scheme, individuals meeting the eligibility criteria are able to pro-rata their taxable income to take into account the number of days that they were outside of Singapore for work. The proportion of taxable income related to work outside of Singapore was not subject to Singapore tax.

Individuals can only apply the NOR Scheme for a maximum of five years from the first year that they are eligible – for many expats this will be the first five years that they are in Singapore.

The effect of the announcement means that expats must ensure that they make the claim for the NOR Scheme when they prepare their return in 2020 as this will be last year in which you can be granted NOR status and obtain the ability to claim NOR in the years after the end of this year.

Individuals who have already been granted NOR status can continue to claim the scheme as long as they meet the annual eligibility requirements.

What should you do now?

As a business owner you should now consider your human resource requirements and look at how the DRC changes will affect your pool of talent. Where appropriate, consider the business’s eligibility to apply for an Enterprise Development Grant to assist with the upskilling of staff or the restructure of workplace processes through the implementation of technology.

For individuals who have just arrived in Singapore, ensure that you are aware of the NOR Scheme eligibility criteria and make sure that you lodge an application for NOR status with the lodgement of your tax return in 2020.

In both cases, seek professional advice and guidance to ensure that you are ready for the change.

About the Author – Boon Tan

With his Singaporean ties and Australian upbringing, Boon has a first-hand appreciation of what it is like to establish yourself and your business as an expat in  Singapore. He regularly draws on his in-depth understanding of the local Singaporean tax system and a network of in country specialists in expat hot-spots  around the world including USA, UK, Asia Pacific and Australia to provide bespoke advice to his clients.

In our blog of 25 February this year we reported on what we consider to be highly inequitable capital gains tax changes that the Government has introduced into parliament. The changes are contained in the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018.  

The Bill, as drafted, denies foreign residents (including Australian expats) access to the capital gains tax (CGT) main residence concession if they sell their former main residence while they are living overseas. In short, no CGT relief would be available to Australian expats who sell their property while they live overseas even for the period of time they lived in their home before departing Australia. 

The Bill has still not been passed and seems for now to be held up in the Senate, which we hope augurs well for Australian expats.

Main Residence Exemption Removal still possible

Unfortunately despite a number of sensible submissions to the Senate (including our own CST Tax Advisors Submission), the Senate Committee has recommended that the Government proceeds with the proposals as announced.

Essentially the Committee indicated that it ‘considers that the measures contained in these bills will form an essential part of the government’s comprehensive and targeted plan to improve outcomes for Australians across the housing spectrum’.

The Committee did not explain why it thought that removing the CGT main residence exemption is a targeted plan to improving housing outcomes. We believe the natural reaction for most Australian expats to a potential loss of the CGT exemption would be not to sell their property until they one day return to Australia. Essentially a lock-in effect will be created rather than improving the quantity of housing stock available for sale. The Senate Committee Report can be access by following this link.

Our Recommendations

We sincerely hope that despite the Senate’s recommendation to proceed that the Government will rethink their proposal to ensure that Australian expatriates are treated equitably.

We strongly urge the Government to fix the Bill by ensuring that amendments are made so that:

• all Australian expatriates who were already non-resident of Australia when the changes were announced on 9 May 2017, should continue to be able to access the absence concession regardless of where they reside; and
• all persons should be able to access the partial CGT exemption for at least that part of the ownership period during which they lived in the property and were resident of Australia.

If the Government does not fix the equity issues in the Bill, at the very least we hope that the Government can extend the transitional period end date from 30 June 2019 (way too close) out to 30 June 2020 or 2021 to give people sufficient time to consider their options. Expecting Australians living overseas to be aware of ‘legislation by press release’ is not satisfactory.

Given that the changes are so fundamental in our view the Government owes a minimum duty to write to all foreign residents taxpayers who are lodging tax returns in relation to Australian rental income, in the event that these fundamental changes apply to them.

In this regard we note the Committee’s recommendation that it “recommends that the Australian Government ensures that Australians living and working overseas are aware of the changes to the CGT main residence exemption for foreign residents, and the transitional arrangements, so they are able to plan accordingly.“(Recommendation 1, Paragraph 2.34 of the Senate Committee Report on Page 17).

Want to make a Submission?

If you wish to make a submission to the Government it would not be too late to write to the Federal Treasurer. Alternatively you can contact CST for more information.

As we reported in our blog last year – the Australian Government announced that it would remove the CGT main residence exemption for foreign residents.

It was said that this reform was being introduced as part of measures to address housing affordability in Australia. Due to other legislative priorities a bill to enact the change was not introduced and we had hoped that the Government would have taken the time to ensure grandfathering of all existing properties.

However the bill was re-introduced earlier this month as Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018, apparently unchanged after the exposure draft consultation period last year.

The Bill has now been referred to a Senate Standing Committee which represents the last opportunity to lobby for changes to be made to the Bill. Submissions close 5 March 2018.

What Is The Problem?

In trying to tighten our CGT laws, the Bill denies Australians living abroad access to the “CGT absence concession”. This existing concession gives many Australian expats the opportunity to retain the CGT exemption on their former home for up to 6 years, even if they rented their home out after they had moved overseas. This exemption will be removed.

Disastrously though, the changes seem to be more fundamental. The Bill, as drafted, denies even a partial CGT exemption by providing no CGT relief even for the period of time when the person had lived in their home before departing Australia. The Explanatory Memorandum to the Bill makes this alarming problem crystal clear (see Example 1.2 which is extracted below). We do not believe this was the Government’s intention.

The only way out under the draft Bill is that taxpayers seem to be allowed to move back into the property after returning to Australia (as a resident) and to then sell the home on a CGT free basis (assuming the absence exemption otherwise applies). This creates a tax-driven ‘lock-in’ effects which is likely to create significant issues for taxpayers and rather than assist housing supply could in fact create further supply constraints.

Does This Apply To You?

If you are an Australian expatriate then the Bill provides that unless you sell your former home prior to 30 June 2019, you will be subject to CGT on the sale of the property if you sell it after that date while you are still a non-resident of Australia for tax purposes. Unfortunately, as currently drafted, the Bill would not even provide you with a partial CGT exemption to recognise the period of time that you lived in your home prior to your departure. To preserve your CGT exemption you would be left with the choice of either selling prior to 30 June 2019 or else keeping the property until you one day return to Australia.

The tightness of the 30 June 2019 deadline has seen concerns expressed in the Australian Financial Review recently about a fire sale in expat owned property. While predictions of a fire sale may not be true, it is nonetheless a highly unfair position to put home owners in and the Bill represents poor policy implementation.

Artificially ending the absence concession by using a ‘drop dead date’ on 30 June 2019 is highly equitable. It will mean that failure to sell by 30 June 2019 could mean that an Australian living overseas could be exposed to hundreds of thousands of dollars of tax, given the increases in Australian property over the last 3 years.

What Should Be Done To Fix This?

We strongly urge the Government to fix the Bill by ensuring that amendments are made so that:

• all Australian expatriates who were already non-resident of Australia when the changes were announced on 9 May 2017, should continue to be able to access the absence concession regardless of where they reside; and
• all persons should be able to access the partial CGT exemption for at least that part of the ownership period during which they lived in the property and were resident of Australia.

We believe that the flaws in this Bill are an oversight that will be rectified once these problems are better understood. In our experience most Australians living abroad who keep their home in Australia do pay taxes and continue to contribute to the Australian economy.

If the Government wishes to persist with the change of law to only permit CGT exemptions for those who are tax resident in Australia –  then they should ensure that they are fair to the thousands of Australians who have moved overseas (most of whom will return) but who have retained their former homes in Australia.

Final submissions are now being requested and we strongly recommend that interested parties make a submission on this inequitable change.

You can contact your local member of parliament and forward this blog.

If you are concerned about the unfairness of this change submissions can be made to.

Committee Secretariat Contact:

Senate Standing Committees on Economics
PO Box 6100
Parliament House
Canberra ACT 2600

Phone: +61 2 6277 3540
Fax: +61 2 6277 5719
economics.sen@aph.gov.au

Extract from Explanatory Memorandum to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018

Example 1.2 — Main Residence Exemption Denied

Vicki acquired a dwelling in Australia on 10 September 2010, moving into it and establishing it as her main residence as soon as it was first practicable to do so. On 1 July 2018 Vicki vacated the dwelling and moved to New York. Vicki rented the dwelling out while she tried to sell it. On 15 October 2019 Vicki finally signs a contract to sell the dwelling with settlement occurring on 13 November 2019. Vicki was a foreign resident for taxation purposes on 15 October 2019. The time of CGT event A1 for the sale of the dwelling is the time the contract for sale was signed, that is 15 October 2019. As Vicki was a foreign resident at that time she is not entitled to the main residence exemption in respect of her ownership interest in the dwelling. Note:

This outcome is not affected by:

• Vicki previously using the dwelling as her main residence; and

• the absence rule in section 118-145 that could otherwise have applied to treat the dwelling as Vicki’s main residence from 1 July 2018 to 15 October 2019 (assuming all of the requirements were satisfied).

Background

Many Australian citizens who leave Australia and become non-residents (i.e foreign residents for tax purposes) rent their former main residence while they are living overseas.

Presently these Australian citizens are able to benefit from a CGT main residence exemption under the ‘6 year absence’ concession (Section 118-145 of the ITAA 1997).  In essence the absence rule means that a person can move out of their main residence, rent it out, and then move back into it before the end of 6 years and the property will retain its 100% CGT free status when it is sold.

Further, where a former main residence is not rented out at all – the property can remain exempt from CGT indefinitely (See Section 118-145(3)).

CST has many expat clients who have moved overseas and who are renting out their family homes.

New Budget Announcement

On the 9 May 2017 the Treasurer announced that the Government “would stop foreign and temporary residents from claiming the main residence capital gains tax exemption when they sell property in Australia from Budget night”. The a transitional rule is to be provided so that people who own such property on 9 May 2017 can sell by 30 June 2019 without paying capital gains tax.

However the announcement was included in a series of measures aimed at improving the integrity of Australia’s CGT rules for foreign investors.

Naturally enough, most Australian expats living abroad would not consider themselves to be ‘foreigners’ and the loss of a CGT exemption on their former main residence would be a very bad outcome.

Unfortunately it is not yet clear whether this announcement was actually intended to apply to foreign residents (meaning foreign tax residents, which would include Australian citizens who are non-resident of Australia) or whether the announcement is intended to apply to foreign nationals only.

Given the lack of detail in the announcement we will have to wait until legislation is introduced before being sure of the Governments intentions in this area. If you are an Australian expat living abroad please do not hesitate to contact us to discuss any concerns you may have or if you require advice.

Please see – http://www.budget.gov.au/2017-18/content/glossies/factsheets/html/HA_16.htm