Australian expats returning to local shores amid the ongoing COVID-19 pandemic will need to consider the tax implications of investments held overseas.
There are tax consequences depending on the jurisdiction resided in and the length of time spent overseas; even if someone has been living and working abroad for a relatively short period of time, it can still result in a hefty tax bill on their return to Australia.
The circumstances dictating a return home could also be quite stressful, but if expats have a sound financial strategy in place throughout their stint overseas, it could go a long way in alleviating a lot of the pressure.
In addition to income tax, they will need to account for any share holdings, employee share schemes – particularly in the event of a redundancy, cash in offshore banks accounts, and pension funds.
Property is another key consideration. Some countries charge non-residents a higher rate of transaction tax or tax capital gains on profits from property investments and, in Australia, if they’ve retained property while abroad, they may be better to move back first before selling. This applies particularly to the former family home, as non-residents selling property are now excluded from the CGT main residence exemption and the related “six-year absence” rule.
The pension system in jurisdictions such as the United Kingdom – where an estimated 40,000 Australians reside at any given time – can also create adverse tax consequences.
People who have been living and working in London for example, often on a high income, need to pay close attention to their pension savings and how to transfer the funds back into the Australian superannuation system.
Shares and managed funds will also need to be carefully assessed, particularly if someone has become a non-resident for Australian tax purposes during their time overseas. These types of investments are generally treated under the CGT rules as having been sold at their market value at the time that tax residency changed, triggering deemed capital gains or losses. However, there would be no further Australian CGT implications if these assets are actually sold while a non-resident, but if they are still owned when Australian tax residency is resumed, they will be deemed to be re-acquired at that time for their current market value. This means that any future capital gains or losses on sale would relate only to the movement in value during the second period of Australian tax residency.
A lot of careful planning and consideration needs to be factored into a possible return home, but seeking professional financial advice will go a long way in alleviating much of the stress involved.