Australian Non Tax Residents – End of Financial Year Planning
Ordinarily, during the month of May we would be readying ourselves for the 2020 Australian Budget. But this year is not like many others, and so we wait another 5 months to learn of what changes might be in store. With only one month remaining till the end of the Australian financial year however, we have taken this opportunity to run through some of the key areas of planning to get your house in order pre 30 June.
Top tips for non-resident planning:
1. Positively geared?
Do you have a Taxable Australian Residential Property (TARP) and are positively geared, with no tax credits? Now is the time to consider making a personal concessional contribution to your super. Below are two scenarios to begin to explain this concept: Scenario 1: Rental income: A$60k p.a. Deductible Expenses: A$30k p.a. Net positive income: A$30k Under the above scenario, you would pay non-resident tax rates, starting at 32.5% on the first dollar of income, equating to A$9,750. Scenario 2: Rental income: A$60k p.a. Deductible expenses: A$30k p.a. Less personal super contribution: A$25,000 Net positive income: A$5k. Under this scenario, instead of paying 32.5% to the ATO on your $30k, you can instead contribute up to a maximum of $25k into your super (the current maximum personal concessional limit). You would pay 15% on the way into super ($3,750), plus 32.5% on the remaining net income amount of $5k ($1,625). The below table compares the 2 scenarios: The objective of this strategy is to minimize your tax dollars by utilizing a personal concessional contribution, in addition to growing your tax efficient savings vehicle for the future. But before you jump on the bandwagon, speak to your adviser to understand whether you are eligible to benefit from taking such steps.
2. Depreciation schedule?
Do you own an Australian rental property and have a depreciation schedule? Depreciation schedules are an useful accounting tool to claim tax deductions on the decline in value of the building structure and value in assets within the property (such as your whitegoods). Consider getting a depreciation schedule in place to maximise your deductible expenses.
3. Have income protection in Australia?
Many of us have maintained our income protection policies in Australia. It’s firstly important to check with your insurer whether they will pay a claim despite your non-tax residence. Once that’s done, the other key aspect is if your own an Australian property, you can claim these premiums as a tax deduction. A little-known expense that many individuals fail to add into their tax returns.
4. Own a previous place of residence in Australia?
This one has received much attention from us expats over the past few years. Investors are able to benefit from prorated CGT relief for the years lived in a former home, plus 6 years from the point it was subsequently rented. This previously meant many expats would consider selling the property prior to the 6 years. The Australian government in late 2019 passed legislation to remove this relief for those selling their former homes whilst considered non-tax residents of Australia. This will kick into gear come 1 July 2020. Should you retain the property and sell upon taking up Australian tax residency again, you will once again benefit from the CGT relief. It has hence become crucial to consider if and when you sell the former home, and the impact your tax residency has on your net return.
5. Turning 65 soon?
Turning 65 has a great deal of significance when it comes to your super. One of them includes not being able to contribute should you not meet the work test, and the other is not being able to further utilize the bring forward provision. Let’s discuss both: a. You can no longer contribute to super from age 65 should you not meet the work test. This work test requires you to complete 40 hours of work in 30 consecutive days during a financial year. b. The bring forward provision allows you to contribute 3 years’ worth of non-concessional contributions. This currently equates to A$300k. For example, let’s say you have excess cash you would like to shift into the super environment. For those eligible, you can contribute over A$100k non-concessionally to super every financial year. Should you however contribute greater than A$100k during a financial year, you will trigger the bring forward provision. This infers you can contribute up to A$300k during a rolling 3 financial year period. You can utilise this strategy up to the date of your 65th birthday. It’s important to note however you can only contribute up to a Total Super Balance (TSB) of A$1.6m. Seriously considering retirement planning can make a huge difference. All of these limits and caps are subject to change. Your adviser is there to educate you where these amounts change.
6. Catch up contributions
From 1 July 2018, a concessional catch-up contribution allowance was implemented. This is available for investors with super balances of less than A$500k on 30 June of the previous financial year. The first year investors can implement this strategy is during the current 2019.2020 financial year. Let’s say for example you have not contributed concessionally during the 2018.2019 financial year when the total concessional limit was A$25k. If your super balance as at 30 June 2019, fell below A$500k, you have the opportunity during the current financial year to contribute concessionally up to A$50k. That is, 2 years’ worth of concessional contributions. You have the ability of using your unused concessional contribution limits for up to 5 years. This could be an exceptionally useful strategy for those choosing to trigger to significant capital gains on a property in Australia.
7. Recently left Australia?
If you managed to leave Australia pre pandemic, you might want to consider deem disposal of any investments (e.g. shares, ETFs, managed funds) that you have retained in Australia. This means you would pay any CGT owing on such assets as at the date you left Australia in your final Australian tax resident return. The impact of doing so, ensures there are no further CGT liabilities accrued in Australia whilst you remain a non-tax resident. Should you not however deem dispose, your investment will continue to be subject to CGT in Australia. Additionally, you will not benefit from the 50% CGT relief on gains achieved as a non-tax resident.
Speak to your adviser today…
This list of end of financial year considerations is not exhaustive, and with a changing landscape, it’s important to appreciate what might be an appropriate strategy for you before taking action steps. Contact us today to start a conversation!
The information contained in this article is intended to be factual in nature. Please seek advice from a licensed financial adviser before actioning any strategy. A professional adviser will be able to consider your financial situation or particular needs, before advising on the suitability. This article is not intended to be a substitute for specialized taxation advice. We recommend you consult with a registered tax agent.
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