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Migrating to Australia: Tax Issues for Inbound Individuals

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Migrating to Australia: Tax Issues for Inbound Individuals

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This was presented to the Migration Institute of Australia's 2016 Annual Conference and highlights the various tax issues foreign individuals should consider prior to relocating to Australia (whether short-term, long-term or permanently).

This was presented to the Migration Institute of Australia's 2016 Annual Conference and highlights the various tax issues foreign individuals should consider prior to relocating to Australia (whether short-term, long-term or permanently).

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Migrating to Australia: Tax Issues for Inbound Individuals

  1. 1. Migration Institute of Australia Tax issues for Migrants: Introduction for Migration Agents MIA National Conference Presentation 17 November 2016, Brisbane, Queensland, Australia James Meli - Director of Tax, Economos Group
  2. 2. PART I – AUSTRALIAN RESIDENCE
  3. 3. Overview of Australia’s tax system • Tax residence ≠ Immigration residence; • Australia taxes: – residents on worldwide income; – non-residents on Australian income; • However: – temporary residents not taxed on foreign income; and – foreign residents not taxed on certain capital gains.
  4. 4. Before leaving home country • Many countries have ‘exit tax’, i.e. deemed disposal of assets @ MV; • Get advice prior to departure to determine: – tax implications of ceasing to be resident of home country; – how income will be taxed on assets in home country and elsewhere going forward, for example:  tax returns; or  final withholding taxes – dividends, royalties, interest.
  5. 5. Before leaving home country • Understand impact of becoming Australian resident; • Worldwide assets fall within Australian tax net; • Deemed acquisition @ MV (except ‘taxable Australian property [‘TAP’]); • Evidentiary burden always on taxpayers – OBTAIN VALUATIONS! • Personal residency can impact on residency of: – foreign companies; and – foreign trusts.
  6. 6. Before leaving home country • Even if foreign entities remain foreign tax- resident, Australian resident individuals may be taxed personally on income derived by: – controlled foreign companies (“CFC’s”); – certain foreign trusts
  7. 7. After arriving in Australia • Based on assets and their location: – are any foreign entities taxed as Australian residents? – if not, are any foreign entities subject to accruals taxation (e.g. CFC rules)? • How will source country tax income/gains? • Does Australia have Double Tax Agreement (‘DTA’) with other country? • If so, who has primary/secondary taxing rights?
  8. 8. After arriving in Australia • If not, will Australia provide a foreign tax credit? • What is the effective tax rate on foreign income? • Should client consider selling assets? • Former main residence: – is client eligible for CGT main residence exemption? – foreign property may be leased for up to 6 years; – ‘6-year’ rule may apply to former main residence in home country prior to arriving in Australia;
  9. 9. After arriving in Australia • Former main residence (cont): – potentially full CGT exemption in Australia (though may be tax in home country!); – alternatively, partial CGT exemption; – cannot have more than one main residence at same time.
  10. 10. PART II – TEMPORARY RESIDENCE
  11. 11. Special regime for certain temporary visa holders • Australian residents taxed on worldwide income; • However, temporary residents only taxed on: – Australian source income; – certain foreign source employment income; • Temporary residents exempt from Australian CGT (except in relation to TAP assets); • Most common temporary residents – 457 visa holders and NZ SCV holders;
  12. 12. What is a temporary resident? • You are a temporary resident if: – hold a temporary visa under Migration Act; and – not a social security resident (“SSR”), that is: o reside in Australia; and o one of the following:  Australian citizen;  holder of permanent visa;  protected special category visa holder; and – spouse is not a resident under SSR. • Exception – tax resident and any condition failed on or after 6 April 2006.
  13. 13. What happens when temporary residence ends? • If individual returns to home country or relocates elsewhere – nothing; • If individual applies for permanent residency: – worldwide assets come within Australian tax net @ MV on that date; – evidentiary burden on taxpayers – OBTAIN VALUATIONS! • See diagram on next page
  14. 14. What happens when temporary residence ends? Arrival in Australia Deemed acquisition @market value Ordinary resident Temporary resident Cessation of temporary residence Temporary residence delays bringing (non- TAP) CGT assets into the Australian tax net.
  15. 15. PART III – ISSUES FOR SHORT-TERM ASSIGNMENTS
  16. 16. Short-term assignments • Unlikely to become Australian tax residents (although watch 183-day rule); • Non-residents taxed on Australian source income; • Employment in Australia has Australian source; • Foreign-residents taxed from ‘Day 1’ unless DTA applies;
  17. 17. Short-term assignments - employees • Australia has DTA’s with 45 countries, including China, India, US, UK, NZ, Singapore and Germany; • Specific terms differ but based on OECD Model; • For employment income, resident of Country X only taxed in Country X: – individual in Australia < 183 days; and – remuneration paid by/on behalf of non-resident employer; and – remuneration not deductible in determining profits of PE.
  18. 18. Short-term assignments - employers • Foreign companies sending employees to Australia – PAYG requirements even if no tax presence in Australia; • Employee resident of non-DTA country – PAYG withholding from ‘Day 1’; • Employee resident of DTA country – no PAYG withholding unless Employment Article of DTA failed (e.g. 183-day period exceeded and liability relates back to ‘Day 1’).
  19. 19. PART IV – BACKPACKER TAX
  20. 20. Backpacker tax – what’s the issue? • Australia has higher tax rates for foreign residents: • Backpackers self-assess as residents and many do not earn over the threshold (note LITO). Income Range Resident Rates Foreign-Resident Rates $0-$18,200 Nil 32.5%$18,201-$37,000 19% over $18,200 $37,001-$80,000* $3,572 + 32.5% over $37,000 $80,001*-$180,000 $17,537 + 37% over $80,000 $26,000 + 37% over $80,000 $180,000+ $54,547 + 45% over $180,000 $63,000 + 45% over $180,000
  21. 21. Backpacker tax – history of reforms • 2015 Budget: – Government proposal to deem backpackers as foreign residents (i.e. no tax-free threshold); – ‘Savings’ of $540m over 4 years; – Backpackers subject to 32.5% rate up to $37,000 from 1 July 2016; • Agricultural and tourism sectors voice opposition;
  22. 22. Backpacker tax – history of reforms • Government announced that it will review its position and introduce fresh measures from 1 January 2017 if re-elected; • Government re-elected; • Draft legislation before Parliament proposing a 19% tax rate up to $37,000; • Lambie/Labor want 10.5%; • Watch this space . . .
  23. 23. Questions Disclaimer – This presentation does not constitute specific advice and cannot be relied upon as such. It contains general information subject to myriad qualifying criteria, exceptions and/or exemptions and both employers and employees should only proceed based on specific advice tailored to their particular circumstances based on the relevant law at that time.

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