Living and working overseas is a once-in-a-lifetime opportunity for some, and for others it’s a regular change of pace.
While living abroad brings with it a wealth of lifestyle and employment opportunities it also presents some tricky financial implications, especially for Australians.
Taxation is one of the most important considerations when you are planning to move overseas.
We asked Tony Stocks from Liberate Accountants for some tips on preparing your financial affairs before heading off on an extended overseas experience.
It is critical to appropriately plan and organise your affairs before you head overseas to ensure you achieve the desired tax outcome, that is, which country do you want to pay your taxes?
One of the most common misconceptions is that you only need to pay taxes in the country you are earning your income and that Australian tax does not apply to you.
The issue at the heart of this decision is whether you are an Australian tax resident. Unfortunately, this has less to do with physical or legal residency, but rather your intentions and actions towards your residency. When you are an Australian tax resident, any income and tax you derive or pay anywhere in the world is included in your Australian tax return. The tax payable is calculated using Australian rates for tax, and in most circumstances, you will receive a credit for the tax you paid overseas.
As Australia is one of the higher tax paying countries in the world, this will usually result in a tax payable to the Australian government. If you are not an Australian tax resident, you only pay Australian tax on your Australian earnings, but you do not receive the $18,200 tax free threshold, so tax is payable on all money earned.
As an example of tax residency, take James, an Australian IT developer who takes a job in Singapore with the intention of staying there 18 months, or possibly longer depending on circumstances. Singapore has lower tax rates, with the top rate of 20% so the tax benefits of moving seem very attractive. However, when James moves to Singapore, he keeps his private health insurance in Australia as he is over 30 and does not want to jeopardise the Medicare Levy surcharge, plus he keeps himself on the electoral role and intends to do postal votes at election time. In this circumstance, James is an Australian tax resident, and must pay tax at Australian levels.
If you are permanently leaving Australia, and will not be receiving any further Australian income, you can lodge your tax return early. To do so, you will need details of any income in Australia, including a payment summary from your employer if you earned wage income. Payslips are not sufficient as it may not capture all payments. The return can be lodged through your regular tax agent, but you may also use a paper based Tax Return form for the prior year (eg. 2014) and crossing out the 2014 and replacing it with 2015. Inside the Tax Return document, there is a box to tick if this will be your last tax return, thus notifying the ATO no further returns are required.
Other taxation considerations when moving overseas include interest still accruing on your HECS debt, plus the logistical considerations of lodging a return in Australia. As a tax tip, you may be able to claim a tax deduction for your airfare and costs of coming home where the trip is for the purpose of lodging your Australian tax return!
A qualified accountant can give you more advice specific to your circumstances.
Other financial areas to consider before you move:
Remember that bank television commercial with the Falcon, who swooped on fraudsters using your credit card overseas? If you will be using funds from your Australian bank accounts after you move overseas, it’s a good idea to let your bank know where you will be living, so they don’t flag your international purchases as potential fraud and freeze your funds.
Many countries don’t provide universal health cover, so you are highly likely to need your own health insurance while living and working abroad. Many of the larger Australian private health insurance agencies provide overseas cover, either through travel insurance products or as a special policy, so it is definitely worth asking your current provider about their international options.
Remember, your health insurance policy also impacts on tax payable in Australia, so be sure to check with your accountant about your specific tax situation before you leave. The same applies to life insurance and income protection insurance policies you may hold that are often claimable as deductions on your annual tax return.
Centrelink or Government allowances
If you are currently receiving a government allowance, such as the family tax benefit or a childcare rebate, be sure to notify Human Services before you leave, to avoid any overpayments that you may be required to pay back.
If you are relocating overseas for employment purposes, you may find yourself liable for double superannuation contributions. The Australian government has social security agreements with some countries to avoid this issue for Australians temporarily working overseas.
If you happen to be retiring to another country, you must be aware of the access requirements for superannuation funds. Even if you are leaving Australia permanently, you cannot apply to cash out your super until you are 65.
If you don’t want to sell your home when you leave Australia, you can continue to treat it as your main residence for six years (for capital gains tax purposes). You will likely rent it out during this time and must declare the rental income on your Australian tax return while you are living outside of Australia.
However, if you cease to be an Australian resident, it is your liability to pay capital gains tax on some of your possessions, including property.
Handy Taxation and Financial Information from the Australian Tax Office:
Head to the Australian Tax Office website to learn more on:
- Residency status
- Filing your tax return early
- Medicare levy surcharge