If you are going to move to Australia, get ready for the crazy system of Australian tax & CRS on immigrants!
We know tax planning is not an exciting start to talk about your new adventure in Australia but make no mistake: every piece of your living in Australia, good or bad, are affected by the tax.
Tax & CRS
Immigrant related tax in AU
Are you Australian Tax Resident?
Australian tax resident is not necessarily an Australian permanent resident or citizen. Your visa status does not dictate your tax obligation in Australia. Too confusing? You are not alone.
The oversimplified definition of Australian tax resident is any person who has lived in Australia for more than 6 months. Yes, even if you are here on a tourist visa, student visa or illegally person, you could be an Australian tax resident. More detail…
Are you liable for Australia tax?
Australian tax residents are subject to Australian tax on worldwide income.
Non-Australian tax residents are exempted from Australian tax on certain income, such as foreign-source income and capital gains realised on assets that are not taxable Australian property, but need to pay tax on income generated in Australia.
What is taxed on an individual?
- Your employment incomes will be taxed at Australian income tax rates.
- Self-employment incomes related to business.
- Directors’ fees – Directors’ fees are included in assessable income as personal earnings and are taxed in the year of receipt.
- Dividends – The assessable income of resident shareholders includes all dividends received.
- Interest, royalties, and rental income.
- Capital gains -including gains realised on the sale of capital assets. Capital assets include real property and personal property, regardless of whether they are used in a trade or business, and shares acquired for personal investment.
- Medicare Levy-A Medicare Levy of 2% of taxable income is payable by resident individuals for health services.
What is taxed on business?
- Business income tax-This is the tax you pay on any money your business earns.
- GST-This is a tax of 10% on most goods and services sold or traded in Australia.
- PAYG-You need to deduct the correct amount of tax from your staff’s pay and send it to the ATO.
- FBT-This is a tax an employer pays on any non-cash payments or benefits provided to employees such as a mobile phone they can use for private purposes outside of work.
- Superannuation-As an employer, you’re required to contribute money to your employee’s superannuation.
- Capital Gains Tax (CGT) applies on any capital gain made through the disposal of assets. It is paid as part of business income tax.
Property tax on a foreign person
A foreign person is temporary visa holders whose visa is subject to limitation, such as an end date.
A foreign person can be an individual, corporation, trustee of a trust, a beneficiary of a land tax fixed trust, government, government investor, a partner in a partnership.
Property tax on a foreign person
A foreign person requires to pay an extra tax when purchasing or owning property in Australia:
- Stamp duty– on the transfer of real property and other business property, up to 7% of stamp duty will be charged depends on what classes of property is transferred.
- Surcharge purchaser duty-The top rate of surcharge purchaser duty for a foreign person could be up to13.5% depends on states.
- Land tax-If you own a property that is not your primary residence, you may have to pay land tax.
- Land tax surcharge– In the state of NSW, if you are a foreign person who owns residential land in NSW, you must pay 2% of land value to NSW state revenue.
- Capital gains withholding tax– if you are not Australian tax resident you need to pay 12.5% to ATO when selling your Australian Assets until you lodged a tax return.
- Council rates-the property management fee charged by local council according to the property’s valuation.
CRS & Tax planning
Immigrant has a legal obligation to report all incomes, even when the income comes from outside of Australia. Tax evasion is a crime, however, you have the right to arrange your financial affairs to keep your tax to a minimum.
The tax planning is not about to avoid your tax obligation, it is about the timing and locating your incomes, or set up asset structure in the way to keep your tax to a minimum. Like the old saying “Life is good if you don’t fail to plan ahead.”
Since the immigrant/expat is moving to cross the countries, it inevitably subjected to two or more countries taxation system.
CRS (Common Reporting Standard) only affect the individual or entity that is not the tax resident in the county where the assets are located.
Where an individual or entity is a non-resident for tax purpose in CRS accepted countries, CRS will impose a duty to report the financial information to the country where the individual or entity is tax resident. So evasion of tax becomes more difficult.
Assets reported under CRS
The key point of CRS is monitoring any assets that may be held in an account maintained by a Reporting Financial Institutions, the monitored assets include:
- Savings in a commercial bank;
- Shares in a corporation;
- Shares or units in real estate investment trust;
- Bond, debenture or indebtedness;
- Insurance Contract or Annuity Contract.
Assets won’t be monitored by CRS?
CRS may have no impact on the assets that have no relationship with a financial institution, including:
- foreign property owned by individual directly.
- An individual holds a foreign property through a company or trust.
- Any non-financial assets-yachts, painting, jewelry.
Timing the asset disposal
Most of immigrant/expat will have to relocate their assets from one country to another. Often the tax rates in each country are very different. If you are selling the assets in the country where the less tax apply, your savings on tax is enormous. For example:
You bought a business for $100,000 about 10 years ago in Hongkong and now the business is worth $1 million. If you migrant to Australia for 6 months and become an Australia tax resident, and then you start to sell this business in Hong Kong, the ATO will expect you to pay capital gains tax on $900,000 in the same income year.
However, if you sell Hongkong business before your move to Australia and make sure you are not the Australian tax resident (please refer to the rule of Australian tax resident) on the same year, you will pay $0.00 on tax for disposal of business in Hongkong.
What if you have already moved to Australia because your visa condition required that you must be in Australian within a limited period? Then a serious tax planning by our lawyer will help you to minimise your tax obligations.
Compare the tax rates of countries
Generally, the more wealth county has higher rates of income tax. When immigrant /expat move from a less wealthy country, the income tax rates are normally lower than Australian. If you choose to pay yourself much more income before moving to Australia, it will save you big time, even if it requires borrowing money from banks or other sources to accelerating your after-tax income. Please get advice from your lawyer.
Choose Assets holding structure
Before immigrant /expat start to relocate and reinvest their assets into Australia, it is very important to consider the assets holding structure because the tax implications will arise according to the different structures. For example:
- A family trust in some situation can minimise the tax when distributing the income.
- A company could defer or minimise the personal income tax.
- A spouse in your business could make you pay less family income tax.
Each asset holding structure has its own merit and risk. Our lawyer is very experienced in advising the risk and benefit of each asset structure.
Australia taxation is very complicated
Tax is a leverage tool for government to control the economy in Australia. There are many types of benefit and grant delivered to the immigrants or employers through the Australian tax system.
The benefit or grant is not a tax but rather a benefit related to your tax obligation.
Even we have highlighted a few points that immigrant /expat in Australia should be very cautious of, in fact the tax system in Austalia is far complicated. The information provided above is a general overview from our lawyers, it is not intended to be specific legal advice on your tax issues.
The Ultimate e-Guide for Immigrant Business success
Much of the frustrations in immigrant business are not necessary and can be avoided.
If you are finding difficult and time consuming to understand and operate a business in Australia, The Ultimate e-Guide for Immigrant Business Success will provide some guidance.