Australasian Taxation Services
Your Australian Taxation Specialists
Tax Considerations for Migration
The Australian Taxation system is extremely complex, and rates of tax are considered high on an international basis. Couple this with the fact that Australia taxes the worldwide income of residents, so planning your taxation affairs is critical in the migration process. The good news is that with sensible planning and the benefit of some timing between relocation, the impact of taxation can be significantly reduced.
Before you arrive
Many people make the mistake of taking their financial capital to Australia when they migrate, when the best option is to gradually move funds in over the period prior to your arrival.
Acquiring Australian property for investment is one of the most beneficial planning techniques for the intended migrant. When quality property is purchased using a sensible level of borrowing, an annual tax loss can be created with the additional bonus of special write offs that can boost the loss. The losses are carried forward indefinitely and become available to offset income when you become an Australian resident in the future, thus giving major reductions on your taxation at that time.
Acquiring Australian shares prior to your relocation is another option subject to proper investment decision processes. While you are a non-resident of Australia, profits on share investment are non-taxable in Australia.
One of the main advantages in acquiring property or shares prior to arrival is in the fact that you are able to acquire the investment at "today's price" rather than the future price which may be significantly higher.
On your Arrival
Once you have migrated to Australia your worldwide income and assets will become subject to taxation. It is essential that you conduct a formal valuation on all investment assets to establish the value as you will be taxed on future profits above this valuation. The Australian property that you hold does not need to be valued as it has been subject to Australian Tax already. Australian and overseas shares can be valued using the last market price on the day of relocation.
It is also very important that you pay cash, or borrow the minimum, for the house that you intend to live in and any other personal items such as furniture, cars or "toys". This is because you will not receive any tax deduction for interest costs on loans used for the acquisition of items for personal use.
Once you are Settled
Decision on your ongoing financial affairs will need to be made once you are settled to ensure your taxation affairs are kept in order. Establishing a Superannuation Fund is one key item that needs to be explored as the rate of tax and benefits of reduced income tax are extremely attractive. The use of corporate investment vehicles should also be closely considered as a means of controlling your taxation affairs.
You will also need to assess whether to reduce or clear any borrowings in regard to the Australian property that may have been acquired. This will depend on your need for the income stream, market conditions and the need to continue any tax loss benefits associated with the property.
You should clearly assess your worldwide income from all sources and work closely with a professional tax practitioner to ensure your tax position adequately protects you from the high personal tax rates that apply in Australia.
Ensure that you fully understand any tax planning methods and be careful to ensure that you do not over complicate your affairs.
Traps to Avoid
- Be wary of magic schemes. Complicated trust and offshore arrangements should be carefully scrutinised and professional assistance sought. Australian Taxation laws can bypass most artificial schemes.
- Don't wait too long to start planning. Lesser benefits may be available to you the longer you wait.
- Don't be afraid of transferring cash. No tax is payable on the transfer of capital, tax is only levied on earnings.