1 property in AU, what happens if I am non tax resident

[woohoo]

Hi

I currently have 1 property in Australia.

I am considering the option of going overseas to travel for about 10 months around the world and visiting my relatives overseas.

My friend told me if I leave for more than 6 months, that means I will become a non-resident for tax purpose?

What happens to my rental income in Australia? Will it mean it will be taxed at a higher rate?

 

[jaypee06]

I see it as 3 different issues.

1. Residency

Residency for tax purposes is a grey area of tax. The following link are the tests you should use to determine your residency for tax purposes. http://www.ato.gov.au/Individuals/International-tax-for-individuals/Work-out-your-tax-residency/Residency-tests/?anchor=P90_7464#P90_7464

The following link is an ATO calculator to help determine this, however it should only be used as a guide. http://calculators.ato.gov.au/scripts/axos/axos.asp?CONTEXT=&KBS=residency_leaving.XR4

2. Rental income as a non resident

If you are a non resident you will not be entitled to the tax free threshold which means more tax. If your property makes a loss it will just be carried forward until there is income to offset against.

3. Capital gains as a non resident

From 8 May 2012 non residents are no longer entitled to the 50% CGT discount. If you bought the property prior to 8 May 2012 then you should get a market valuation as at 8 May 2012 as the discount will be apportioned. http://www.ato.gov.au/General/Capital-gains-tax/In-detail/Calculating-a-capital-gain-or-loss/CGT-discount-for-foreign-resident-individuals/

Just from the information from your post it is very unlikely you will lose your residency for the following reasons:
- you're intending to come back in the short term future
- you're going overseas just to travel and visit relatives
- you have a property in Australia (continuing to maintain ties to Australia help argue that you're a resident for tax purposes)
- I doubt you're going to close all your bank accounts and cut all ties to Australia prior to leaving for a 10 month trip

Keep in mind that if you are considered a resident for tax purposes during the period you are overseas you will need to declare income earned from all sources, including foreign income.

 

[Terry_w]

nice summary jaypee

 

[woohoo]

Hi jaypee

I always thought that just being away for more than 6 months has that kinda implication for that tax year.

From what you're saying, if someone who travels overseas a lot each year, and his days outside of AU is more than 6 months, he could still technically call himself a resident for tax purpose because he's not leaving, just in and out a lot?

 

[Terry_w]

Hi jaypee

I always thought that just being away for more than 6 months has that kinda implication for that tax year.

From what you're saying, if someone who travels overseas a lot each year, and his days outside of AU is more than 6 months, he could still technically call himself a resident for tax purpose because he's not leaving, just in and out a lot?

There was a recent case about an Aussie living and working and employed in Dubai - over 2 years and he was still classed as a tax resident.

 

[jaypee06]

Hi jaypee

I always thought that just being away for more than 6 months has that kinda implication for that tax year.

From what you're saying, if someone who travels overseas a lot each year, and his days outside of AU is more than 6 months, he could still technically call himself a resident for tax purpose because he's not leaving, just in and out a lot?

Yes, that's a possible scenario. The 183 day test is one of the tests to determine residency, but passing or not passing this test alone (or any other) isn't enough to establish residency for tax purposes. You look at all the facts and then see which argument is stronger.

 

[Aaron_C]

I know a real estate agent who goes overseas for 183 days per year just to avoid being a tax resident (supposedly).

 

[woohoo]

but for those who go overseas just to become a 'non resident', wouldn't it be worse for them?

Now they have lost the free tax threshold for residents ($18k is it?) and also they have to pay witholding tax if they get bank interest, dividends, or any other Aussie income etc.

And if they have Aussie rental income, will it mean being taxed at a highest rate plus witholding tax?

 

[woohoo]

3. Capital gains as a non resident

From 8 May 2012 non residents are no longer entitled to the 50% CGT discount. If you bought the property prior to 8 May 2012 then you should get a market valuation as at 8 May 2012 as the discount will be apportioned. http://www.ato.gov.au/General/Capital-gains-tax/In-detail/Calculating-a-capital-gain-or-loss/CGT-discount-for-foreign-resident-individuals/

Does this valuation have to be in black and white by a valuer? Or estimated by real estate agent in a letter of appraisal is ok?

Can anyone recommend a valuer in Melbourne? My auntie is never a resident, and she owns an apartment in the city. She gets her tax done via an accountant here in Melb and pays her tax. I have to tell her about this CGT implication and ask her to get a valuer.

 

[coastymike]

Aaron

If the real estate agent plans on returning to Australia after 183 days, has a rented property then live in to return to or their own main residence and family ties, bank accounts, etc are still in Australia then under the domicile test they will still be considered to be a resident for tax purposes. I've applied for over 10 private rulings on residency status and many people forget the old 23AG (which allowed you to discard overseas income if away for more than 183 days) has been scrapped.

Under the double tax treaty with the country he goes to he might also be considered to be resident based on where his economic ties are. If his real estate business is in Australia then under most DTA's he would be considered to be resident here if the tie breaker provisions applied.

 

[Aaron_C]

Yeah I agree I think he's an idiot. Apparently he is a qualified accountant....scary.

 

[jaypee06]

That's exactly right. My guess is they're trying to keep some foreign income/investment off the ATO's radar. Either that or they've been grossly misled.

As for the market valuation, I think an appraisal by a real estate agent will suffice but I'd like to get a second opinion on that.

 

[Rob G.]

That's exactly right. My guess is they're trying to keep some foreign income/investment off the ATO's radar. Either that or they've been grossly misled.

As for the market valuation, I think an appraisal by a real estate agent will suffice but I'd like to get a second opinion on that.

Its not the fact that somebody is grossly misled.

They want to avoid tax so badly that they will accept anecdotal information from people they know or suspect are not qualified because it accords with their desired outcome.

Tax evasion is "a blameworthy act or omission".

This includes failing to make further enquiry when you reasonably suspect something is not correct.

You cannot avoid penalties by refraining from delving more deeply, ignorance is not bliss in the long term.


As for market valuation, see:

http://www.ato.gov.au/General/Capit...oss/Market-valuation-for-tax-purposes/?page=5

 

[coastymike]

Agreed Aaron.

And all it takes is a competitor of his to find out what he has been doing (Sounds like he has been bragging about it to all and sundry) and then report it to the ATO fraud hotline. Now on their database and investigations begin. Can take years to finally get through things but by then penalties and interest would have accrued dramatically. Oh well cant tell some people. Having done a few Wickenby matters I can assure you when they finally get audited they aren't as confident. In fact I've seen some tough characters break down in tears when they realised they might be spending a long time singing old songs that we used to sing when we were young "bend and stretch reach for the sky, stand on tippy toes oh so high"

 

[Paul@PFI]

The ATO online residency calculator is now pretty good. Unfortunately there are two and many use the wrong one (use "departing") or answer questions without reading every single definition !! It is VERY VERY clear. If you go overseas for two or even three years on a visa that doesnt give PERMANENT RIGHTS OF RESIDENCY you are a Aussie tax resident. You need to consider the visa for the country you visit. See below. Its like a long holiday. Then the problem could be dual taxation if that visa says you can work....DTA may allow the source country to tax in preference to oz.

Relevant extracts is :Are you an Australian resident who is emigrating to live permanently in another country? Y/N ???

Emigrating
Answer ?Yes? to this question only if you are abandoning Australia as your home country, adopting a new home country, and you have a migration visa for the new country. While your intentions are important, you can only be classed as emigrating if you have the right to stay in the new country indefinitely.

Live permanently
To live permanently in a country means to make it your home indefinitely, meaning for the foreseeable future. You may still travel out of the country.

Example
Maria wants to settle permanently in Kenya, however she can only obtain a short term worker visa. Even though Maria intends to emigrate from Australia, she does not yet have the right to stay permanently in Kenya. Maria will answer ?No? to this question. If she can get her visa upgraded to allow a permanent stay, Maria's answer will change to ?Yes?.

You have to establish permanenetly being non-resident first. And permanent doesnt mean forever. But it isnt 183 days either.

 

[donkey]

Hi

I currently have 1 property in Australia.

I am considering the option of going overseas to travel for about 10 months around the world and visiting my relatives overseas.

My friend told me if I leave for more than 6 months, that means I will become a non-resident for tax purpose?

What happens to my rental income in Australia? Will it mean it will be taxed at a higher rate?

Is your 'friend' a bar fly? ie did you hear this at the pub or did you read this on the back of a cornflakes box? Come on OP, is this a serious thread?

 

[woohoo]

Is your 'friend' a bar fly? ie did you hear this at the pub or did you read this on the back of a cornflakes box? Come on OP, is this a serious thread?

Don't have to be so sarcastic, you donkey. The topic has been travelling for a few days now, and people have been contributing to answer the question.

You have a personal problem with me? Take it outside!

 

[Dean2012ad]

Is your 'friend' a bar fly? ie did you hear this at the pub or did you read this on the back of a cornflakes box? Come on OP, is this a serious thread?

You have a personal problem with me? Take it outside!

Cut the OP some slack, many of us have posted questions on somersoft without doing a semi-thorough google search first.

"No one is without knowledge except him who asks no questions."

And don't be so defensive Woohoo, donkey doesn't have a personal problem with you because he doesn't even know you. Lighten up, its a forum with differing opinions..