When relocating your life to Australia, you will not only need to adjust to a new culture and lifestyle, but also a very different tax regime. Australian personal tax is quite fair and sensible once you get used to it.
Here is a quick summary of some of the key issues you need to know about…
BRINGING IN FUNDS
When you relocate to permanently live in Australia you don’t have to worry about any tax whatsoever on the funds you bring with you. You can freely transfer as much money as you choose, provided that it can be shown to be from a legitimate source.
LEAVING ASSETS OVERSEAS
You are not required to sell your UK property or other assets on relocation. As a new resident of Australia, you will be subject to tax on the income and capital gains on worldwide assets, but only from the date of arrival. So any profits made prior to your relocation will not be subject to Australian tax.
You may need to have a sworn valuation on your property to establish the value, but once done it will protect you for years to come.
Even if you leave your cash abroad initially and bring it later, then that won’t be subject to tax either. You will be required to declare the annual interest, but the original capital is not taxed.
If you decide to keep more than A$250,000 in cash out of Australia, you may be subject to tax on currency movements as well, so that needs to be considered in your decision making.
If you are subject to capital gains on assets kept abroad, then you will be entitled to a 50 per cent tax free concession once you have been in Australia for more than 12 months. If you sell the asset within the first year of arrival, then the full gain achieved above the value at time of arrival to the eventual sale value is subject to tax, so ideally you should try to not sell until after 12 months when you can benefit from the 50 per cent discount against your tax.
Each year communication and reporting lines between governments are improving, so it is important that you properly declare any offshore income or gains as it is extremely likely that the tax authorities will be able to find out about things at some stage which could result in significant tax cost and penalty. Doing the right thing may not be a major tax burden, but being caught out will likely be expensive.
RELOCATION EXPENSES
If you are lucky enough to have an Australian employer bringing you over, then consider asking them to reimburse you the cost of relocation as this would be a tax deduction for them.
Sadly, if you pay for it yourself then the cost won’t be able to be claimed against your tax.
THE FAMILY HOME
One of the only tax free activities for Australians is their personal residence. There is no capital gains tax on your principal residence, so it is wise to try and own your home whenever possible.
Interest on a personal home mortgage is not allowed as a tax deduction, so it is also sensible to keep the debt on your home to a minimum and in most cases you are better to cash in investments to reduce your private mortgage rather than struggle with the interest cost and keep the investment.
SALARY TAX ISSUES
All employers in Australia are required to deduct income tax from your salary before paying it to you. At the end of each tax year (which ends on 30 June) you then lodge your Income Tax Return and work out the actual tax payable and any overpayment will be refunded, or shortfall requested.
Employers are also required to pay a mandatory contribution to their staff superannuation account, which is currently 9.5 per cent of ordinary time earnings, as well as provide workplace insurance cover.
You can make additional contributions into your super, however this may not be able to be claimed as a tax deduction, so you need to consider this before acting.
TAXABLE INCOME
Almost all forms of income are taxed in Australia and need to be declared in your annual return. This includes interest, dividends, property rents, pensions, salary, earnings and business income.
Australian sourced company dividends come with some valuable tax credits that can make them a very favourable source of income, especially in retirement.
CAPITAL GAINS
Apart from the family home, all gains made on the sale of assets are subject to tax in Australia. As previously mentioned, if the asset is owned more than 12 months then the gain is discounted by 50 per cent before any tax is charged.
Given this discount, it makes sense to always try and hold assets for the long term and enjoy the reduced tax rate.
PRIVATE HEALTH INSURANCE
Australia has a strong public health system so you do not need to have private health cover if you are a permanent resident visa holder or Australian citizen.
However there is a penalty in the form of an additional levy for not having private health insurance if you earn above AUD$90,000 as a single or AUD$180,000 as a family. This is to encourage people to take private cover in order to take pressure off the public system, if they can afford it.
TAX DEDUCTIONS
Any cost incurred in earning income in Australia is allowed to be claimed against your income tax each year. There is no limit to what can be claimed provided you keep receipts and can justify how the expense was necessary in helping you with your earnings.
PENSIONS
Australia has an excellent tax system for retirees. Australian sourced pensions are usually tax free, however if it is coming from an overseas source it will likely remain taxable in Australia, with a credit for any tax paid abroad.
There are some double tax agreements which may help here, but generally you should consider the merit of transferring your pensions to an Australian-based fund as this may save you significant tax and improve your convenience factor as well.
This can be a complicated procedure so you should seek professional assistance to ensure you remain compliant with the transfers.
INHERITANCE TAX
It is pleasing to note that Australia does not have any inheritance tax or gift duties whatsoever. Relocating to Australia may not automatically exclude you from UK Inheritance Tax, but that may eventually end once you can show you have genuinely severed ties and have an established life in Australia, albeit it may take many years to prove this is the case.
TEMPORARY RESIDENTS
For anyone going to Australia on a temporary visa, most of the above issues apply, however there are some advantages in that you may not be taxed on your overseas income and capital gains whilst living in Australia. Bear in mind this will change once you switch to a permanent residency visa, so keep aware of changes in your circumstances.
We hope this guide gives you an improved understanding of the tax system awaiting you in Australia. As with all tax issues, do seek expert advice from qualified professionals prior to your relocation and before too many decisions are made.
A qualified tax advisor will help you to make sense of the new system in Australia.
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By Steve Douglas: SMATS Group and Australasian Taxation Services founder and chairman (Registered Australian Tax Agent 6236400)
SMATS GROUP: Australian Property, Tax & Finance Experts since 1995.
Trust SMATS Group for all your Australian taxation, finance and property advice. Visit SMATS.net, email smats@smats.net or phone (UK) +44 207 5383914
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