Non-tax resident strategic advantage

[Intrinsic_Value]

On another note i got some positive news.
Yes if you are a non-resident for tax purposes you dont pay capital gains tax on listed shares (note possibly excluding anything to do with property this still gets captured to my understanding).

This is absolutely fantastic.
I am not quite ready to make the move, but when i do this presents incredible arbitrage opportunities.

Basically i stay in australia for less than 180 days for the year (+have to show that i have an overseas place of abode), and i PAY NO TAX.
Unfranked dividends i think attract a tax rate of 15%
Bank interest 10% flat tax
Franked dividends: no further tax.

I still need to question my ability to invest successfully in shares (which can only be proved with time).

But i am starting to get expressions of interest from some overseas asian friends to look at starting up a fund for overseas investors.

I tell you the govt is on drugs.
The legislation was created to 'encourage' overseas investment, but all this will do is increase overseas speculation, and i want to be able to get my cut of this.
Even my management fee will be at a very low tax rate if it domocile it in say singapore.

This gives me an incredible edge over any australian tax resident.
Stupid, but as i have said, there is no point whinging, just take advantage of it.

So if you see me at some future point in time sipping a bear and posting from overseas you will understand why.

 

[boz]

r u sure about this? have you a link?
I can imagine australian opening accounts with own relatives names resident overseas, I don't think it is quite like you wrote

 

[bene313]

In order for you to become a non-resident it takes more than just staying overseas for a 180 days. In fact the 180 days is irrelevant. Further, there are CGT implications for your Aus asset holdings at the time (if) you gain non-resident status.

 

[Tony3008]

This gives me an incredible edge over any australian tax resident.

Scarcely incredible. And if you're genuinely domiciled abroad you have to add in the exchange rate risk. I can only speak from formerly being a UK taxpayer owning Australian property - unlike the natives I couldn't set my losses against other income and paper depreciation didn't come into the equation at all.

T.

 

[alexlee]

The 183 day rule doesn't actually work like that. It's more a 'if you live in Aus for more than 183 days, you're a tax resident. If you don't, we'll look at other things.' Other things include sources of income, assets, whether you keep a home in Australia, etc. The rules are deliberately vague because the ATO would prefer to consider you a tax resident.

Just living overseas may not be enough.
Alex

 

[Intrinsic_Value]

The 183 day rule doesn't actually work like that. It's more a 'if you live in Aus for more than 183 days, you're a tax resident. If you don't, we'll look at other things.' Other things include sources of income, assets, whether you keep a home in Australia, etc. The rules are deliberately vague because the ATO would prefer to consider you a tax resident.

Just living overseas may not be enough.
Alex

Yes i agree on the 183 or 180 or whatever day rule.
Sources of income: yes and no it
Home in australia: yes and no, it depends on my understanding on whether you consider that your main place of abode (and one possible way to get around this is through a trust structure)

At the end of the day it depends on your assets and income. If you are paying sufficient income tax it pays to.

 

[john_smith]

Not exactly...

Unless you genuinely live overseas you're going to have a hard time claiming non-residency. It's not simply a matter of creating some trust structure to claim 'non-residence'. That's beside the point. Simply ask yourself, if the ATO takes you to court and a judge has to decide where you 'reside' according to a reasonable person's interpretation, then what will be the outcome?

It comes down to whether you have truly established a home overseas, and other things besides that such as whether your children go to school overseas, whether you have strong financial and personal ties to the foreign country, and whether your stay is temporary or indefinite. Simple creating a trust structure isn't going to cut it I'm afraid. In fact, simply living overseas (even if it is for 365 days of the year) is not enough to claim non-residence. Your stay needs to be indefinite and you need to establish a residence.

But for people who genuinely reside overseas the benefits can be substantial, and include the fact that any negative gearing accumulates as a nice tax credit to be offset against income that you earn if you return to Australia at some point in the future.

There's lots of informattion on this on the ATO site, including outcomes of cases that went to court which are a good source for further information.

 

[Graemsay]

There's been a recent case in the UK about tax residency. As mentioned above, the defendant lost out because he had significant ties to the UK.

More details in the link below:

http://www.ft.com/cms/s/0/3f990380-1cf6-11df-aef7-00144feab49a.html

 

[Intrinsic_Value]

The trust issue was in regards to property. All my property is in a trust, even my place of residence (for which i pay commercial rent to the trust).

But thanks for the other comments.

As to the other criteria i am fairly confident i can create a situation of non-residency.
Other determining factors would include:
*relationships overseas,
*overseas businesses
*ownership of a place of residency overseas.

I havent studied this law for many years, but basically you have to show where your 'place of abode is'. This is the key.

 

[john_smith]

I assume your intention is to actually move overseas and establish a new life there? If that's the case then indeed you may be able to claim non-residence. Also note that you may trigger a capital gains event by declairing non-residency, which could make you liable for CGT even though no sale has actually been made.

 

[bene313]

I assume your intention is to actually move overseas and establish a new life there? If that's the case then indeed you may be able to claim non-residence. Also note that you may trigger a capital gains event by declairing non-residency, which could make you liable for CGT even though no sale has actually been made.

Gets more complicated because his assets are held in trust. So it's possible the trustee will become a non-resident..............

 

[john_smith]

I guess as a majority shareholder of the trust he may still be liable if he is resident right, even if the trust itself is non-resident?

 

[alexlee]

I guess as a majority shareholder of the trust he may still be liable if he is resident right, even if the trust itself is non-resident?

Why would the trust become non-resident if the trustee is an Australian (by definition resident) company?

 

[Intrinsic_Value]

Why would the trust become non-resident if the trustee is an Australian (by definition resident) company?

thats correct the trustee is a company of which i am the sole director.

 

[john_smith]

So how are you going to make the trust non-resident?

Or alternatively, are you yourself going to leave Australia indefinitely in order to become non-resident?

Interested to hear your strategy!

 

[Y33]

Each department has its own guidelines for who is and who isn't an Australian resident and it isn't just the 180/3 day rule ewven with the tax dept.
Some silly examples. If you claim you live overseas and leave that country for more than 3 weeks you can't personally import a vehicle to oz without additional reasons and paperwork as they class you as not residing in that country and are still an oz resident. On the other hand if you spend too much time out of the country you don't qualify for baby bonus etc even when the department tells you it is okay to leave and then changes their mind after you leave.

As a non resident you can hold an Australian drivers licence but you would be amazed at the amount of times my renewal has been questioned because I live the majority of my time overseas. Becoming a non resident for tax purposes might sound like a good deal but check it out very carefully. What happens if you become sick during this time and require hospitalization in Oz are you still covered for any medicare allowances as a non resident?

 

[Spectre]

So if you see me at some future point in time sipping a bear and posting from overseas you will understand why.

Forget the tax advantage, how do you sip a bear?

 

[wobbycarly]

Forget the tax advantage, how do you sip a bear?

There's someone in every crowd...

 

[bene313]

Well there's Russian Bear Vodka

Or perhaps you could make a Russian Bear Cocktail

 

[Intrinsic_Value]

So how are you going to make the trust non-resident?

Or alternatively, are you yourself going to leave Australia indefinitely in order to become non-resident?

Interested to hear your strategy!

Why does the trust have to be a non-resident?
but your point does raise the importance of paying for good tax and legal advice before implementing such a strategy.

Some other people have posted points about issues such as receiving medicare. From my understanding if you are an australian citizen you are entitled to medicare, but this is besides the point.

This whole strategy is only feasable if one achieves significant net assets.
There will be numerous transaction costs involved (not direct but 'lifestyle'), so one needs to be 'wealthy' before considering such a move.

Consider for example some of the asian countries:
there is no capital gains tax on share transactions in thailand, in singapore im not sure what the rate is but their taxation rates is very low, same for hong kong.

This is where differential tax rates really come into play, but again you need the wealth for it to be worth your while.

At the end of the day i'm not paying 50% of my profits out in tax.
To minimise this i can hold assets for 12 months to pay effectively 25%, but this penalises me against non-tax residents who do not pay CGT and thus can be more adaptable than me.
I also refuse to adopt debt strategies just to reduce tax. I think the GFC has taught a very good lesson as to the fallacy of this strategy.

Most of my working life has been spent owning small businesses where i control the 'amount of tax i wish to pay'. When ones net wealth is relatively low, its easy to fly under the radar, but as wealth increases this becomes harder to achieve.