Tax Issues for
Inbound Individuals
©The Money Edge 2012
Issues for inbound individuals
TAX ISSUES
Determining
residence status of
individuals for
Australian Income
Tax purposes
GENERAL GUIDELINES
In order to determine tax consequences that may arise for
an individual arriving in Australia, it is first necessary to
establish whether they will be classified a resident or nonresident.
This is due to the fact an inbound individual classified as
an Australian resident will be required to pay tax on not
only income derived in Australia but foreign source income
as well, however an inbound individual who remains a
non-resident will only be required to pay tax on their
Australian source income.
Determining if one is a resident or non-resident is not
always straight forward and the specific facts of each
particular case are used in making this determination.
Recording residency
status on the
Individual Tax return
Where an inbound Australian enters the country during a
financial year and is classified as a non-resident, simply
answer “No” to the question on page 1 “Are you an
Australian Resident?”
Where an inbound individual becomes an Australian
resident during a financial year, answer “Yes” to the
question on page 1 “Are you an Australian Resident?” and
at item A2 on the “adjustments” page, enter the date at
which the taxpayer became a resident.
Is the individual
classified as a
resident for tax
purposes in any other
country?
It is possible that an inbound individual may become an
Australian resident and also remain a resident of another
the country. When this occurs it is likely Australia will have
a ‘Double Tax Agreement” in place with the foreign
country, where by, the two countries will classify the
individual as either a resident of Australia or the foreign
country (but not both), meaning tax will only need to be
paid in one country.
TAX ISSUES
Medicare levy and the
Medicare levy
surcharge
GENERAL GUIDELINES
An inbound person who remains a non-tax-resident of
Australia is not liable for the Medicare levy.
An inbound individual who becomes an Australian tax
resident will be liable for the Medicare levy unless they are
successful in obtaining an exemption certificate, with which
they apply to the Minister of Health. There are many
different reasons for the inbound individual to be granted
or denied this exemption and the Minister will address
each case individually.
An inbound person, who is successful in receiving the
exemption, will not be liable for either the Medicare levy or
the Medicare levy surcharge.
An inbound Australian tax- resident, who is unsuccessful in
receiving the exemption, will be liable for the Medicare levy
and in most cases the Medicare levy surcharge as well.
CGT consequences
on becoming a
resident
Depending on the classification of asset held, different
scenarios may occur.
When an individual becomes an Australian resident for tax
purposes, they are believed to have acquired each CGT
asset they own just before becoming a resident. The
individual is then subject to CGT when a CGT event
occurs.
Assets held by the individual pre CGT, will not be not be
subject to tax in Australia at all.
The CGT 50% discount is only available where the asset
has been held for at least 12 months from the time the
individual became a resident
Note: CGT will apply to most assets including those
located overseas.
TAX ISSUES
Application of the
main residence
exemption
GENERAL GUIDELINES
Many inbound individuals own overseas dwellings. While
the individual is considered a non-resident there will be no
tax to pay in Australia upon the disposal of this property.
Once an inbound individual becomes a tax resident, they
are considered to have acquired the dwelling just before
that time for a cost base equal to the market value.
Although the individual is considered to have acquired the
dwelling at the time of residency, the time the dwelling was
used as their main residence can be considered when
applying for the main residence exemption.
Where a resident ceases to use an overseas dwelling as
their main residence, they can continue to treat this
residence as such under the “temporary absence” rule, by
which the exemption can continue to be applied:
For an indefinite time – while the residence is not
rented
For up to 6 years – while the residence is rented
during a period of absence
It is important to note the exemption can only be applied to
one residence at time and there could be future tax
consequences to consider before determining which
residence to apply the exemption to. It is advised you seek
a professional opinion before any such decision is made.
Implications of
holding an overseas
rental property
It is only when an individual holding an overseas rental
property is classified as an Australian tax resident that
there are tax implications.
The individual is required to include the foreign rental
income on their Australian tax return along with any foreign
tax paid.
The individual may be eligible for a Foreign Income Tax
Offset and it is therefore important to check if they fall into
this category and account for the offset if applicable.
TAX ISSUES
Implications of
holding an overseas
rental property
continued
GENERAL GUIDELINES
The individual is allowed to claim deductions for expenses
incurred, directly in relation to the rental property, in
accordance with Australian domestic tax laws
Interest payments to an overseas lender can incur
withholding tax. Where the individual has failed to withhold
the required amount of tax, the interest deduction is
generally denied.
There are exemptions that can apply and it is
recommended an individual in this situation seek
professional advice as to any exemptions that may apply to
their individual case.
Where a net foreign rental loss arises, the tax loss can be
deducted against the taxpayer’s total assessable income
(domestic or foreign) for that income year or carried forward
to later income years.
Overseas
superannuation
payouts
When an inbound individual becomes an Australian tax
resident, any lump sum payment received from a foreign
superannuation fund is tax free if received within the first 6
months of the taxpayer becoming a resident.
If the payments are not received within the first 6 months,
each payment can be taxed
ADVICE WARNING!
This brochure is intended to provide general information only and has been prepared without
taking into account any particular person’s objectives, financial situation or needs. Investors should,
before acting on this information, consider the appropriateness of this information having regard to
their personal objectives, financial situation or needs. We recommend investors obtain financial
advice specific to their situation before making any financial