The Australian tax system is an all encompassing one. Once you permanently relocate to Australia and become a tax resident then all of your income and capital gains from assets held both in and out of Australia will be taxable.
There are concessions for people that move on Temporary Visas to exclude overseas assets from being taxable, but this only applies while you are on the Temporary Visa.
Assuming you have a Permanent Visa, although he shares or other assets may become taxable there are some rules that ensure a level of fairness for you.
- Any profits made prior to your arrival in Australia are not taxable. Under the Australian rules your overseas assets are deemed to be acquired at the market value on your date of arrival to live permanently in Australia, so if that is higher than the original profit then it will soften the future Australian tax.
- If you sell your shares after being in Australia more than 12 months, then half of any capital gains made above the market value on arrival will be free of tax. This makes it very worthwhile to wait the year prior to selling any of your assets, especially if the value has increased substantially.
- If you leave Australia within 5 years of your original migration and return to live overseas then any assets you had prior to your arrival are ignored for tax purposes provided they are sold after your departure, not during the time you lived in Australia.
You should be mindful that when you are living in Australia as a permanent resident, the sale of offshore assets is taxable even if the money is not brought down to Australia. The transaction is taxable as a result of the sale, not the movement of funds to Australia.
Many people think it is best to sell offshore assets prior to migrating to Australia but this is not true. Given that you only pay tax on future profits the only reason to sell should be a financial one, that is you are not confident in the assets future growth potential or you have a better use for the funds, such as buying your Australian residence.
The relocation is a good time to review your asset holdings and ensure they are performing satisfactorily and easy to manage from your new Australian home.
It may be appropriate to look at the ownership of your assets and consider the use of tax effective structures like Family or Discretionary Trusts, as it may be appropriate to shift ownership into such a structure, although you need to consider the UK tax consequences and transfer costs. A professional Australian Tax advisor can quickly evaluate the merit of this.
In the modern world, you should be aware of the great information gathering powers of tax departments. It is extremely likely that your offshore assets will be discovered so the option of “forgetting to mention” your overseas holdings is fraught with danger.
In truth, full disclosure combined with sensible tax planning can soften, or indeed eliminate, any potential tax issues in Australia, so your best option is to become aware of your tax position and plan accordingly.
