For non-tax residents of Australia, the landscape continues to change. In the first of this two-part article, we cover some of the key tips and traps for expatriates who have swapped the sunburnt country for the little red dot that is Singapore.
Being based in Singapore as an expatriate is a fantastic opportunity to grow personally, professionally, and possibly financially. But it’s not without its challenges. Managing money and commitments across two (or more) jurisdictions can be complex. And as we start 2018 and race towards the end of the financial year, now is a good time to plan ahead before 30 June is upon us once more.
1. Make superannuation your friend
If you find yourself positively geared on a Taxable Australian Residential Property (TARP), with zero tax credits, you will be assessed at a non-resident tax rate starting 32.5% on the first dollar of income. If you have stock granted as part of an employee share scheme during prior employment in Australia, which are due to vest only after you leave, it may also be subject to income tax at non-resident rates.
Superannuation is a great tool to minimise your liability. By making a concessional contribution to your super every year you have positive income, you can save at least 17.5% on tax. Just remember to stay within the annual contribution limits! As at 1 July 2017, the concessional contribution cap is A$25,000—which may include employer contributions (super guarantee) you’ve received in the same financial year.
2. Benefit from non-concessional contributions
Non-concessional contributions to super don’t offset any tax liability—although it will not be subject to tax on the way into super (unlike concessional contributions which are taxed at 15%), as it’s assumed you’ve paid tax on these funds elsewhere.
Over the years, the Australian government has taken steps to further limit how we maximise super. Legislative risk and strict conditions of release must be kept in mind in terms of your retirement plans. However, don’t let that distract you from the longer-term goal of boosting your retirement savings, with the added benefit of being taxed at a concessional rate.
Of course, you have the ability of saving in Singapore without any capital gains or income tax. So striking a balance between saving offshore with minimal tax implications (while you reside in Singapore) and contributing to super in order to yield the long-term benefits at draw down (and in an environment of ever reducing limits and caps) needs to be considered.
3. Save on tax with shares and managed funds
Have you recently moved offshore and still hold direct shares or managed funds in Australia? You can elect to deem dispose in your last Australian tax return (where you were treated as a resident for tax purposes or part thereof). By doing so, any gains achieved on these assets while you’re living away from Australia will be completely exempt from capital gains tax (CGT).
Don’t forget to do this—failure to do a deem disposal of your direct shares and managed funds will result in a loss of the 50% CGT discount during your tenure as a non-tax resident! Of course, we always recommend seeking specialist tax advice before implementing such strategies.
4. Understand the effect of negative gearing
As of 8 May 2012, the 50% CGT discount on Australian assets held for longer than 12 months was removed for non-residents holding Taxable Australian Residential Property (TARP). If your property is subject to CGT, any growth you achieve while offshore will be 100% assessable.
This means accrued tax credits from years of being negatively geared can assist with minimising your CGT liability when you sell—or at the least offset your taxable income upon repatriation.
The Australian government has implemented a number of changes that affect the ability of non-residents to claim certain deductions as well as the 6-year CGT exemption. (We’ll discuss this in more detail in Part 2 of this series.)
If you’re disciplined with your savings and investment, and have the cashflow to support a negative-gearing strategy in order to manage tax implications (which continue to become more onerous on non-residents), then you may wish to seek advice on how to structure your property and associated deductions.
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While this article addresses some of the Australian-centric strategies available to you, it’s not an exhaustive list. To get the best out of your money, it’s best to speak to an expert adviser on Australia who will be able to offer professional advice and help you achieve your financial goals—whatever they may be.
Get in touch with us today!