As we start the New Year, many start to plan for the move to Australia, whether that be this year, in 2 years or 10 years’ time.
Tax planning is a key consideration when planning the move, as it is a complex area and I always recommend a personal consultation; however the following is a high-level commentary on how best to structure your finances to minimise the tax impact once you have moved back home.
Australian Property is expensive and difficult to restructure.
Australian property is always taxable in Australia regardless of your tax residency, and most restructuring results in a capital gains tax event, local stamp duty, and ramifications with your home loan if you have financed the property. Accordingly, it is usually only before you acquire the property that you may consider owning it in an entity (Trust, company or superfund) VS individually (jointly or individually). Capital gains tax concessions also need to be considered such as the principal place of residence exemption (and whether you may jeopardise this), and the 50% capital gains tax discount.
Australian Discretionary Family Trust
This is a very popular structure and used mostly for income distribution amongst the family to benefit from family members on lower marginal tax rates, as well as asset succession purposes. The trustee determines the residency of the trust and generally they are used to hold personal investments like shares and managed funds, however this also extends to Australian property (but consideration must be given to additional taxes such as land tax, stamp duty and The Foreign Investment Review Board (FIRB) rules and fees).
An Australian company is always a resident of Australia for tax purposes. They provide access to the corporate tax rate (30% for passive investments, and 26% for business income) with the ability to pay a non-resident shareholder (ie an Expat), a dividend without any top up tax to the shareholder. Once in Australia however, you will have to pay top up tax on the dividend received if your marginal tax rate is more than the company tax rate.
Australian Superannuation and CPF
You cannot setup a Self-Managed Superannuation Fund (SMSF) when you are living offshore due to the strict residency requirements however you can still make contributions to your existing industry or commercial fund subject to your annual limits. Once you are back in Australia, you can then setup a SMSF and roll over your existing balance into it. Note Superannuation is always taxable up until the fund is converted into pension phase with annual earnings taxed at 15% and capital gains at 10%, together with strict access rules limiting access to age 60 and retired OR 65. Those with CPF could also be in for a shock with a potential change in ATO sentiment if CPF is brought into Australia. This could result on 100% of the earnings being taxed upon access in Australia.
Foreign Life Assurance Policy
This structure is popular for holding investments such as managed funds or directly held shares, as it provides tax deferral in the first 10 years if you are a tax resident of Australia, and tax-free access post 10 years. This is subject to the 125% contribution rule, meaning you cannot put more than 125% of the previous contributions within the year after. Some providers have also achieved an ATO product ruling which provides great comfort to the account holder.
Written by Tristan Perry, Head of Tax, Australia at Select Investors Australia. Tristan is an Australian tax agent and expatriate tax advisor based in Singapore. If you would like to learn more on this topic, Tristan regularly presents educational webinars to further outline the best ways to protect your assets through tax management. The most recent webinar on Australian tax planning for the move back home can be found here.
The levels and bases of taxation, and relief from taxation, can change at any time. The value of any tax relief depends on individual circumstances.