Living off offshore income while in Oz - question for Paul and other experts!

Hi Paul (and others). You are putting some great stuff out there. Thanks so much for that - I will read through it all over time. What a great repository of knowledge!

I'm struggling with an issue of being off shore but planning to move back to oz. assume family reasons I will be considered a resident when moving back.

Oz properties more or less neutrally geared but income I plan to live off will be generated off shore (let's say Hk or Singapore) from rental income on properties and dividend paid stocks. Any suggestions on how to bring into oz without the tax issue, when I we to use this income to live off in Australia. I'm more than happy to contribute by paying gst on what I spend in oz and also income tax on any income generated onshore in oz - it's the offshore income being taxed (even if I simply keep it off shore while having become a resident again, that irks me

I'm thinking there has to be a way. Eg form a company in oz that makes a loss to offset what I bring in, but actually somehow the company actually makes money eventually when I cash out?

Or forming a company offshore that lends me cash that I then bring into oz before I am officially a resident, and the offshore company in return for the loan it gives me manages and gets right to all my offshore income to pay the loan hence net net I actually "earn" no income after I have moved back.

Putting a big chunk into oz index etf (which produces primarily a fully franked dividend).

Maybe dividing offshore income to each family member in oz to reduce Max tax rate.

Have you written any articles on this or for any methods that would work to help reducing oz double taxation?

Feel free to put this query into a public post by the way. Thanks so much!

 

The general principles of tax residency mean that if you return to AU then all your worldwide income is taxed here. I do not give advice on tax avoidance arrangements - The general theme of your enquiry IMO. Personal tax advice is my suggestion.

Repatriation of your savings and proceeds from offshore is not taxable. You are quite free to do that.

 

Who owns the rental properties overseas?

 

Most developed countries tax residents on worldwide source income. If people want the benefits of being a resident (generous social security, infrastructure, health, etc.) then they are expected to pay for it.

There are domestic investments that can be tax effective depending upon circumstances, e.g. superannuation or insurance bonds.

Even a small business gets generous CGT concessions upon the owner selling and retiring.

Lots of little things to tune up as opposed to one big scheme.

 

Noted Paul on the repatriation point and thanks.

To be clear, my questions relate not to tax avoidance (illegally) but rather to tax minimisation/optimisation (legally of course). So to the extent you can advise on the latter it would be much appreciated!

 

For the scenario let's assume it's the person moving back to oz who owns the properties. I presume that person could put them into some kind of a trust structure but that would incur significant stamp duty on the transfer of each property.

And if held in a company I presume it would still need to be disclosed of the person moving back held a share in that company or had an ability to control it?

Given that it's fine to repatriate I do wonder if my idea about having a company grant a cash loan to repatriate in return for management rights and income of all assets held offshore would work?

 

Thank Rob. Yes I understand the rationale.

Interestingly NZ takes the opposite and more progressive view on returning expats. No tax on any off shore income for 4 years. Rationale is to reverse brain drain, encourage re-immigration, an acknowledgement that returnees contribute to the economy and perhaps the reality of the difficulty in measuring and collection offshore income.

 

If you own them then the income would be assessable here.

I don't get what you are saying in the last paragraph

 

You might be interested in a recent book - The Panama Papers by some German dude.

He shows how the rich set up offshore structures and hide their control by using nominee directors with powers of attorney and bearer shares. All illegally used to hide control and to evade taxes.

 

By last para I mean as follows.

Let's say I expect my offshore assets to yield 1m over the next 5 years. So, whilst I am still off shore and not yet resident I have a company that lends me 1m in return for the rights to this offshore income for the next 5 years.

I then repatriate that 1m loan and bring it to oz tax free. Meanwhile whilst I then become a resident I have no income for the next five years as any income goes to pay the loan hence offshore income is zero.

 

Cant see that working.

 

Australia giving up tax rights? hahahahahaha. In the area of tax on individuals, our government is world class.

Australia has general anti-avoidance law (Part IVA) that is a catch all if an arrangement is a scheme to avoid tax. So your repatriation arrangement will need to not be caught by the parameters of that legislation.

 

Fun fact ....Two countries tax on a citizenship basis.

1. USA
2. Eritrea

It kinda says something.

 

Back to the OP

CGT rules impose a CGT event on Non-Australian Property assets when you become a tax resident. AU property is always subject to AU tax no matter what.

So all you own can potentially become subject to CGT from that day. Its taken that you have acquired them at their market value on that day so a contingent CGT problem exists from day one.

Did you keep a record of that value ? And the exchange rate on that day ?

Whether its in a company, trust or personally owned same deal applies to a CGT interest / asset.
Then there are issues of control, residency for a entity etc and that can lead to serious compliance risks if its not addressed. Bringing some matters onshore or at least declaring them may be required.

If it produces income AU would seek to tax it. If it is an offshore asset Australia would seek to treat it as sheltered offshore assets. AU share data with many offshore agencies (incl China now)
ATO statement regarding release of taxpayer data

I recommend all inbound taxpayers seek personal tax advice for these reasons. There is no such thing as a legal tax avoidance scheme. Its either legal or its avoidance.

 

Many thanks and noted.

Let's say you move back for 5 years, don't sell overseas assets and hence don't realize any capital gain. Then you move offshore again such as you are a non resident and then sell and make a capital gain. Any of it taxable pro rated for the period of 5 years in between?

 

Yes it will be taxed.
When becoming a resident you are considered to have acquired the property for CGT purposes. When you cease to be a resident you are considered to have disposed of the property ofr CGT purposes.

 

Thanks. I guess though in practice it would be pretty hard to objectively assess if an offshore property has risen during a specific period if not actually sold.

Back to my earlier idea though I can't see what would be objectionable in a non resident obtaining a loan in return for management rights to off shore properties being assigned to the party who gave the loan, and then repatriating that money to oz along with becoming a resident. The off shore income would then be zero as all goes to the lender and the money brought in as a loan would be non taxable. It's an idea I'm toying with anyhow

 

I have heard that there may be particular circumstances where a double tax treaty may prevent you from being subject to Australian CGT, namely in the following circumstances (but I haven't verified this with a tax adviser):
- you own property in UK
- you then become tax resident in Australia
- you move back to the UK and become UK tax resident again
- you sell your UK property while resident in the UK
- you would then pay UK capital gains rather than Aus CGT because of the double tax treaty.

 

Interesting. Wonder how this would work with countries that have no capital gains tax on property. New Zealand or Singapore for example?

 

On a different but related note, what if the person moving back to oz sold up overseas and bought for example the vanguard Australian index ETF. That yields around 5% dividends. They are apparently around "80% fully franked" which I am not quite sure what this actually means. Does it mean that I would only pay tax on around 20% of that dividend income? Eg invest 1m. Div = 50k, 10k of which is subject to income tax? If so this might be worth considering.