End-of-year Tax Tips for Expatriates Australian Taxation Seminar July 2010 Presented by: Geoff Taylor MBA CPA
Presentation Overview Key issues covered in this presentation include: Determination of tax residency status What is included Taxable Income? What deductions can I claim? Which countries does Australia have Double Tax Agreement with? How much tax will I pay? Can I access my superannuation when I leave Australia permanently? Is there any tax on capital transfers? 2
Am I Resident for tax purposes? The tests the Australian Tax Office uses to determine your residency status are not the same as those used by the Department of Immigration, Multicultural and Indigenous Affairs (DIMIA). In general, the ATO considers you to be an Australian resident for tax purposes if you have: always lived in Australia come to Australia and live here permanently, or actually been in Australia for more than half of the financial year, (i.e. > 183 days) unless: your usual home is overseas, and you do not intend to live in Australia. In order to become a non resident you need to: leave Australia permanently i.e. not intend to return establish a permanent place of abode overseas. NB: A person who is resident for tax purposes is generally subject to Australian tax on their worldwide income. An exemption applies for 457 Visa holders. 3
Double Tax Agreements Australia has Double Tax Agreements with the following countries: Argentina France Malaysia Romania Switzerland Austria Germany Malta Russia Taipei Belgium Hungary Mexico Singapore Thailand Canada India Netherlands Slovakia United Kingdom China Indonesia New Zealand South Africa United States Czech Republic Ireland Norway South Korea Vietnam Denmark Italy PNG Spain Fiji Japan Philippines Sri Lanka Finland Kiribati Poland Sweden 4
Types of Assessable Income Assessable Income for resident taxpayers includes: Personal exertion income e.g. employment income Allowances Centrelink benefits Interest income Net rental income Dividends from company shares Distributions from managed funds and trusts Partnership income Net capital gains (only half is subject to tax if asset held for more than 12 months). 5
Foreign Source Income Exemption for Temporary Residents The general tax principle in Australia is that taxpayers who are tax resident are subject to tax on their worldwide income. However, there is a special exemption on certain types of income for people who meet the definition of temporary resident. Someone who holds a 457 Visa would be classified as a temporary resident. For people who meet the definition of temporary resident: most foreign source income derived by temporary residents is non-assessable non-exempt income (NB: overseas employment income earned while a temporary resident may be assessable in Australia); capital gains and losses without the necessary connection to Australia are disregarded (except certain gains on shares and rights acquired under employee share schemes); and interest paid by temporary residents is not subject to withholding tax. 6
What Deductions can I claim? In order to claim a deduction for work-related expenses, the expense must be necessarily Incurred in earning income. Examples of work-related expenses include: Union fees, subscriptions to trade business or professional associations Cost of attending professional seminars, courses, conferences and workshops. Reference books, technical journals and trade magazines. Professional library depreciation at 10% p.a. Computer (depreciation at 25% or 33.3%, repairs, interest on borrowings to buy computer) Software Internet expenses only the work-related portion. Phone expenses. Home office expenses. NB: Can t claim for travel to and from work or for personal clothing or personal items. 7
What can I claim for Car Expenses? Method 1: Cents per Kilometre Maximum of 5,000 business kilometres. Rates based on engine capacity of your car: 1.6 litre or less 63 cents 1.601 to 2.6 litre 74 cents 2.601 litre or more 75 cents Method 2: 12% of Original Value Must travel more than 5,000 business kilometres in the tax year in order to use this method Maximum deduction is 12% of the luxury car limit for the year you first used or leased the car. Do no need written evidence, but you need to keep a record (log book) of your kilometres. Method 3: One-third of actual Must travel at least 5,000 business kilometres + claim is one-third of ALL car expenses. 8
Tax Offsets There are a wide range of Tax Offsets you can claim. Key Tax Offsets include: T1 Spouse, Child-housekeeper or Housekeeper - the maximum spouse tax offset you may be able to claim is $2,159. Can be claimed if your Adjusted Taxable Income (ATI) was less than $150,000 and your wife s ATI is less than $9,254. T5 Private health insurance claimable if amount at item G is greater than $0. T6 Education tax refund 50% of eligible education expenses a refund of $390 for each eligible child in primary school a refund of $779 each eligible child in secondary school. T9 Medical expenses - you can claim a tax offset of 20% of your net medical expenses over $1,500 9
Medicare Exemption 457 Visa Temporary residents are eligible to apply for an exemption of payment of the Medicare Levy. In order to claim an exemption you need to obtain a certificate from the Medicare Levy Exemption Certification Unit of Medicare Australia. When you lodge your tax return, you will be exempt from paying the Medicare Levy if you have the certificate. The Medicare levy exemption application form can be obtained at the following link: http://www.medicareaustralia.gov.au/public/files/ma_3169_application_for_certification_fo r_medicare_levy_exemption_purposes_011005.pdf 10
Resident tax rates 2009 and 2010 rates are as follows: Current tax thresholds for 2009 / 10 tax year ($) Tax rate New tax thresholds from 1 July 2010 tax thresholds Income range ($) 0 6,000 0% 0 6,000 0% Tax rate 6,001 35,000 15% 6,001 37,000 15% 35,001 80,000 30% 37,001 80,000 30% 80,001 180,000 38% 80,001 180,000 37% 180,001 + 45% 180,001 + 45% NB: You need to add Medicare Levy of 1.5% to the above rates if you are not entitled to the Medicare exemption. 11
Living Away From Home Allowance (LAFHA) A LAFHA is an allowance an employer pays to an employee to compensate them for additional expenses incurred and any disadvantages suffered because they employee is required to live away from their usual place of residence. LAFHA is subject to FBT. Taxable value of LAFA is the amount of the allowance paid, less either or both of the following: exempt accommodation component exempt food component Exempt accommodation component what is considered reasonable. Exempt food component changes each year 2010 rate $229 per week for one adult You need to deduct statutory food component of $42 per week to calculate the exempt amount i.e. $229 - $42 = $187 per week per adult. 12
Departing Australia super payments Temporary residents who leave Australia can access their super if: (i) they visited on an eligible temporary visa; (ii) the visa has ceased. (iii) they have departed Australia. Departing Australia super payments (DASP) are subject to tax at the following rates: 0% for tax-free component i.e. your own contributions. 35% for taxed element of taxable component. 45% for untaxed element of taxable component. Withholding tax will be the final tax no need to include in your final Australian tax return. From 18 December 2008 you will have at least 6 months after you cease to hold a visa in order to claim your super. Otherwise the funds will be forwarded to the government as unclaimed super. If your money has been sent to the government, you can track it down using SuperSeeker 13
About Majenda Accounting, taxation, and financial planning services for expatriates Majenda Online was formed in January 2003 by Geoff Taylor to provide specialist international taxation, financial planning and superannuation services to expats. The practice initially focused on providing services to expatriate in Dubai and has now expanded to provide services to returning Australian expatriates, expats from overseas and those migrating to Australia. Majenda has clients in Sydney, Melbourne, Brisbane, Sunshine Coast, Gold Coast, Adelaide and Perth. As well as being a qualified CPA and Registered Tax Agent, Geoff Taylor has a Master of Business Administration from the Australian Business School. Geoff is a financial planner and Authorised Representative of RGM Financial Services, based in Sydney. Key Services The key services offered by Majenda include: Income Tax returns Tax advice and tax planning Financial plans and investment advice Transition planning. 14
Disclaimer Geoff Taylor is an Authorised Representative of RGM Financial Services and a Director of Majenda Online. Any advice contained in this presentation is of a general nature only and does not constitute personal product advice or personal tax advice. We have not taken account of the objectives, financial situation or particular needs of any particular person. Therefore, before making any investment decision, readers should consider the appropriateness. Although the information provided in this presentation was obtained from sources considered to be reliable, Majenda and RGM Financial Services do not guarantee that it is accurate or complete. Therefore readers should not rely upon this information when making investment decisions. Majenda and RGM Financial Services do not accept any liability for any resulting loss or damage suffered by a reader or by any other person. 15