If you are thinking about moving to Australia from overseas, or planning to leave Australia, then the change of the individual tax residency rules may affect you. Under the new rule, if you are in Australia for more than 183 days, you are a tax resident. If you are in Australia for less than 183 days but more than 45 days, then the ATO will look at 4 different factors:
– The right to reside permanently in Australia.
– The ability to access Australian accommodation (do you have a property to stay in Australia, which you can always move in anytime?)
– The family connection in Australia.
– The economic connection in Australia.
The change of the individual tax resident rules can reduce the complexity, and more likely that more taxpayers will be treated as tax residents. Hence a good planning is required if you have no intention to take up Australian tax residency.
Please note that the Double Tax Agreement (DTA) will be considered if the other country also treat you as their tax resident under their local law.
Previously I have written an article about Kiwis in Australia holding NZ properties using a family trust:
Kiwis in Australia owning NZ properties: Tax or No Tax in Australia? (PART 2 – TRUST)
Here is a real case that I would like to share: A kiwi (lets call him Sam) has a family trust in New Zealand. Sam’s NZ home is held by the family trust. He is the settlor and the trustee of the family trust. The beneficiary is Sam himself and his son. After Sam’s departure to Australia, his son lives in the property and pays Sam a rental income every fortnight. Sam is a temporary resident for Australian tax purpose.
Sam’s NZ family trust becomes an Australian tax resident because Sam (the trustee) is now permanently residing in Australia. It has 2 very serious tax consequences:
1. Any rental income paid by Sam’s son is now taxable in Australia
2. The family home is now subjected to Capital Gains Tax (CGT). It is deemed to be acquired by the trust on the date that the trust becomes an Australian tax resident. The CGT is payable later if:
- Sam dispose the family home, or;
- The trust becomes a non-resident for Australian tax purpose again, i.e. If Sam later moved back to New Zealand
The worst news is: the CGT main residence exemption does not apply to properties owned by a trust!
It is a very big mess. Since Australian tax can be as high as 45% (not including medical levy), the impact is massive.
If Sam holds his NZ home under his own name, or done the tax planning before leaving New Zealand, he can avoid all the taxes mentioned above because of the temporary resident exemption. The temporary resident exemption, just like the CGT main residence exemption, only applies to individuals.
From my experience, Kiwis love to hold their properties using a NZ trust. It is nothing bad about using a trust if the trustees can always remain in New Zealand. Otherwise, it could be a real big mess and cost you thousands of dollars.
Some time ago I wrote an article about Kiwis in Australia holding NZ properties by using a NZ company or under their own individual names. The feedback was very good. This article will focus on holding NZ properties using a NZ discretionary family trust.
Please click the following link for PART 1 of the article:
Kiwis in Australia owning NZ properties: Tax or No Tax in Australia? (PART 1)
Continue reading Kiwis in Australia owning NZ properties: Tax or No Tax in Australia? (PART 2 – TRUST)
Happy 2018! (This is the first article in 2018).
Recently, the revenue minister Stuart Nash announced that the bright-line test on residential property sales would be extended from 2 years to 5 years. The government claimed that the extension would reduce the property speculation behavior and make homes affordable.
The bright-line test was introduced in October 2015. The purpose is to tax all residential property investors (both NZ and overseas) for the capital gain if the disposal is done within 2 years from the date of purchase. According to the law, this is not limited to NZ properties only, which means if you are an Aussie expatriate or a Kiwi repatriate owning residential properties in Australia and you sell it within 2 years from the date of purchase, you may be captured under the bright-line test.
In my opinion, the bright-line test cannot make homes affordable. In fact it may make the problem worst. It shouldn’t exist at all:
- The property price is depending on the basic supply-demand theory. More supply and less demand, in theory, should bring the price down. The bright-line test would reduce the supply because people would hold the property for more than 2 years in order to avoid the tax. The extension from 2 to 5 years would reduce the supply further. The demand may not be affected by the bright-line test – Investors do not need to pay any tax at the time of purchase. Investors can avoid the bright-line test easily by not selling the property.
- It has many side-effects. The bright-line test provides exemption to NZ commercial property but does not provide any exemptions to overseas property, which does not make any sense at all. Kiwi expatriates or foreigners holding oversea residential property may be captured unintentionally by the bright-line test. The extension from 2 to 5 years would make the problem worst.
New Zealand is going to the wrong way as the work should be done at the purchasing side in order to reduce the demand. A stamp duty is what they should have introduced, not the bright-line test, which is an extremely simple version of Capital Gains Tax. A stamp duty is better because it taxes property purchaser AT THE TIME OF PURCHASE so it can reduce the demand and have less impact to the supply (usually the stamp duty is paid by the purchaser, not the seller). The stamp duty rate can be varied depending on the status of the purchaser. For example, there can be an exemption if the property is purchased for self-use. A reduced rate can be applied to NZ investors and a heavier rate can be applied to foreigners.
It is also very important to stop foreigners to buy any existing NZ properties. The government is working hard on this part but still not very sure if they are going to follow the Australian’s treatment.
Finally there is an update on the change of CGT for foreign resident. The government has released an exposure draft and asking interested parties for comments. Unfortunately, it is not a good news for Kiwis in Australia.
Continue reading Capital gains tax changes for foreign residents: An update
Kiwis in Australia owning NZ properties: Tax or No Tax in Australia?
There are so many Kiwi expats living in Australia. They can stay and work in Australia permanently by holding their New Zealand passport and will automatically obtain a Special Category Visa (SCV) subclass 444 at arrival.
Many Kiwis in Australia are owning NZ rental properties – May be the property was their home before moving to Australia or they wish to invest their money into their country of birth. This area of tax can be very tricky. Recently we have a client (a Kiwi family living in Australia) overpaid their tax by about AU$50,000 over the last 5 years just because their previous accountant has no understanding in this area of tax.
Continue reading Kiwis in Australia owning NZ properties: Tax or No Tax in Australia? (PART 1)
In Australian tax, a tax resident is taxable on the worldwide income and a non-resident is taxable only on the Australian income. As like New Zealand tax, failure to get your tax residency correctly may cause all your overseas income and salaries being taxed in Australia, even if it has been taxed in the foreign country.
Continue reading Residency: Australian tax
In New Zealand tax, a tax resident is taxable on the worldwide income where a non-resident is taxable only on the New Zealand income. For a Kiwi expat, it is very important to make sure your tax residency is non-resident after your departure, especially if you are going to a country that New Zealand has not yet signed a Double Tax Agreement (DTA). Failure to get your tax residency correctly may cause all your overseas income and salaries being taxed in New Zealand, even if it has been taxed in the foreign country.
Continue reading Residency: New Zealand tax
Recently there is a research showing that more and more Kiwis living in Australia are planning to move back to New Zealand permanently. It is essential that you get your tax right before and after your departure.
The information in this article is also suitable for anyone departed or planning to leave Australia permanently.
Continue reading What you need to do when you leave Australia permanently?
Recently there is a debate about the Kiwis living in Australia permanently not able to get an Australian citizenship. Are there any benefits of getting it? Is the citizenship going to affect your tax obligations? Continue reading Should a Kiwi expat in Australia get an Australian citizenship? In tax perspective