Top 5 Taxes that affect Australian Expatriates in Singapore
9 May, 2018
1. Individual Income Tax Rates for Foreign Residents / Australian Expatriates
Unlike our friends and family back home Australian Expatriates that are considered non-residents for tax purposes will pay 32.5c from the first dollar. If you have a surplus rental income in Australia it may make sense for you to take a negative or neutral stance on your investment mortgages.
Income Tax rates for Foreign Resident individuals
| Taxable income | Tax on this income |
|---|---|
| $0 – $80,000 | 32.5c for each $1 |
| $80,001 – $180,000 | $26,000 plus 37c for each $1 over $80,000 |
| $180,001 and over | $63,000 plus 45c for each $1 over $180,000 |
Income Tax rates for Resident individuals
| Taxable income | Tax on this income |
|---|---|
| $18,201 – $37,000 | 19c for each $1 over $18,200 |
| $37,001 – $80,000 | $3,572 plus 32.5c for each $1 over $37,000 |
| $80,001 – $180,000 | $17,547 plus 37c for each $1 over $80,000 |
| $180,001 and over | $54,547 plus 45c for each $1 over $180,000 |
*Foreign residents are not required to pay the Medicare levy.
*If you are a non-resident for Australian tax purposes, and you generate rental income in Australia, you are automatically obliged to file a tax return in Australia
2. Capital Gains Tax Discount on Investment Properties
If you are looking to buy an investment property in Australia whilst being a non-resident for tax purposes then it is crucial that you understand the following tax.
Before 8 May 2012, regardless of your tax residency status, if you make a capital gain and you have owned the Australian property for at least 12 months, you as an individual will be eligible for the 50% CGT discount, which has the effect of halving the capital gain. However, the CGT discount is no longer available to individuals who are non-residents in respect of taxable capital gains accrued on CGT assets (which include Australian properties) after 8 May 2012.
If you are a non-resident and you acquired a CGT asset in Australia after 8 May 2012, you will not be eligible for the 50% CGT discount. If you bought the asset before 8 May 2012 and sell it after that date, you may elect to use the ‘market value approach’.
Make an informed decision and speak with an Australian Specialist before you purchase an investment property in Australia.
3. Proposed changes to the CGT Main Residence Exemption
Background
If you have a main residence or family home in Australia and as long as you do not claim an alternative house as your primary residence, then you are entitled to continue to claim your previous home as your primary residence for capital gains tax purposes for up to an additional six years (6 year temporary residence rule). This was great news for most Australian Expatriates because if your property is considered a Main Residence then you will not be subject to a Capital Gains tax should you choose to sell that property within 6 years.
Changes
The proposed change to the law implies that anyone who sells their main residence whilst being a non-resident for Australian tax purposes will lose ALL entitlements to the CGT main residence exemption, and will be subject to capital gains tax on the full amount of any capital gain. This is irrespective of how long you have owned your home, and how long you have lived overseas. Sell your main residence whilst being a non-resident for tax purposes and you will lose all your entitlements to the CGT main residence exemption.
The government has grandfathered the changes such that properties held on 9 May 2017 that classify as a main residence will not be impacted if they are sold before 30 June 2019.
Should Australian Expatriates sell their property before 30 June 2019? The answer to this question will be determined by the long term plans of the owner. Speak with an Australian Specialist before making any decision.
4. Australian Shares and Deemed Disposals
When an Australian resident individual chooses to leave Australia to live overseas s/he is usually classified as a non resident for Australian tax purposes from the time of departure.
A significant Australian tax consequence can arise under what is called CGT Event I1 when that individual departs while owning investments such as Australian shares.
If an Australian Expat does own relevant assets such as Australian Shares they will need to make a decision. They can either choose to deem the asset as disposed of and pay the outstanding CGT or they can choose to do nothing and pay the outstanding CGT at a later date of disposal.
The consequence of not choosing to deem the asset as disposed of when becoming a non – resident is that all future growth on the asset will continue to be subject to CGT.
The consequence of deeming the asset as disposed of once becoming a nonresident is that it will make the taxpayer subject to capital gains tax on an unrealised gain when s/he is not likely to have monies available to pay the tax, as no actual sale of the asset has taken place.
5. Capital Gains Withholding – The costly expense when selling your Australian property
If you are looking at selling an Australian property or other relevant assets whilst being a nonresident then your returns could be cut by up to 12.5% at settlement thanks to foreign resident capital gains withholding.
If you are a Non Resident and have sold an asset like property worth over $750,000 AUD you will be required to pay withholding tax of 12.5%. (That’s $93,750 on a $750,000 property)
The tax has been put in place to make sure that foreign residents pay any tax liabilities. Capital gains withholding is not a tax, but a pre-payment to the ATO of any potential capital gains tax liability. You will need to lodge an Australian tax return at the end of the financial year and claim a tax credit for any capital gains withholding paid.
