Moving to the USA – the tax implications

Hey everyone,

My partner is being relocated to Los Angeles for her job in May, we'll be leaving Australia for a minimum of one to two years. (Our intention is to return to Australia after that time). We'll be living in the US as a tax resident and will be paid in US dollar. We have a portfolio of 5 investment properties in Australia.

Has anyone lived in the US as an Australian citizen and would be able to share any insights on the tax implications of owning an international portfolio; how we might be taxed in the US, how we might be taxed in Australia at the same time, how things are adjusted on our return... etc.

Looking forward to hearing your thoughts.

Luke

 

No main residence exemption, loss of 50% CGT discount, taxed on non-residence rates

 

You might want to double check your tax residency. If it is a one year contract and your “life” is in Australia you are potentially an Australian tax resident still.

And you can work in the us and be taxed there as a non-resident.

 

I agree with @Ross Forrester

2 years with an intention to return to australia after 2 years doesnt sound promising for being classified as a non resident for tax purposes.

BUT a big caveat you may be able to argue otherwise. Given the tax involved i always recommend a private binding ruling before you go. It gives you absolute certainty. Otherwise the tax costs can be crippling

 

Side issue.... if you have US$ while over there I would look at US property markets as many markets are hot. May also be able to source finance??

 

I would argue for the USA it may be VERY difficult to be classified as a US tax "resident" and hence a AU non-resident tax payer. Thats because US recognises based in citizenship and also resident aliens. For a few years the USA wont issue either. You would need to depart AU and migrate to the USA rather than hold a visa. Visa means you are a AU resident taxpayer normally. And typically have must have intention to depart and not return for the foreseeable future.

Hence quite likely you will subject to dual taxation with credit allowed in AU for the US Federal tax paid. That really means that full and final tax is here rather than apparent low rate US taxes. If your wife's employer offers a tax advisory equalisation service its worth consideration. They will handle the tax issues.

Medicare, medicare levy surcharge and super need to be considered. And land tax may be impacted if you are absent as it will hit threshold

One issue to watch is HELP debts and departure at airports - Its a horrid new process.

 

Paul the emigration issue is with respect to domicile. The permanent place of abode test doesnt require emigration and is still a relevant test.

I dont agree you need to migrate to the US or you are automaticallly an australian tax resident. Probably a few private rulings going both ways.

 

Agree, the private ruling issue is more relevant for the USA esp when its in the grey area around the 2 year + mark etc. Certainly a intention today to return in that time frame may meet the residency tests here or also be highly uncertain. BUT....it can often change while absent eg in 18months time you extend for a further 2 year etc. The abode test for the USA is easier than some countries where they dont allow ownership of land. Depends if you acquire or stay in rented or employer supported accom too.

Other questions cant be determined with such little information anyway. I believe a good start is the correct answers to the departure residency tool. eg Emigration = No.

Tax Tools - Residency - Leaving Australia.

 

Yes agree. Will also be important to consider whether you maintain your previous main residence in Australia as well. If left vacant and family lives in it while you are away not a positive factor. If you rent it out might be able to argue you didnt want to sell as it was a good investment asset in a safe jurisdiction.

The problem with that is that IF you were deemed non resident and then sold that main residence while you were non resident the main residence exemption wont apply FOR ANY PERIOD it was your main residence. Not one single day.

 

Oh boy, plenty to think about here. We don't have a PPOR in Australia, always rented, so will be fully relocating to LA. The contract is for 1 year, but I believe they want us to stay longer, so there is no specific time frame of return... we just know we want to return Australia in the future.

We'll be meeting my partner's US company based accountant very soon to discuss a few details, and I'll be in touch with my AU accountant also to clarify points mentioned.

Thanks so much for all your comments.

 

How did the move turn out in the end?

 

Sorry I missed your initial post.

Im in the USA and have Sydney IP's so can hopefully answer any questions.

Im assuming for are coming over on an L1 or E3? (if so good - NEVER get a greencard...major major problems if you do - google "heart taxation act" for details).

You should check out SMATS.net as they specialize in Aust/USA tax.

My advice...don't sell your properties while OS and you'll be fine. You just need to file income with irs etc/cant claim negative gearing but you probably already know that.

If you are cash flow positive you could still be negative after depreciation as the IRS has awesome dep rules.

Post back if you aren't clear on anything.

 

Terry, Its my understanding that the loss of PPOR main residence exemption still hasn't gone through.... (and may not ever).

Is that correct?

Though obviously a lot is subject to change depending on who wins the next election etc......and yes the loss of the 50% CGT discount for IP's is terrible.

Basically my wife and I refuse to purchase any more Sydney IP's until this situation changes (and am happily diverting funds into US equities in the mean time which over the long run earn about the same as IP's anyway so not really missing out on anything and the 20% LTCG with the IRS is way better than the 41% we would pay to the ATO).

 

Yes, I think it is still not law yet. But the removal of the 50% discount is.

 

The laws were set aside while Treasury and Govt do a full review on proposed changes to residency taxation and associated laws. Ironic the CGT changes were passed by both houses and not passed to the GG for assent. Still could be...................No word on the plans yet.

Yes the 50% discount issue was ended in 2012....ONLY for a non-resident.

Dean - Not sure how you figure the US tax rate helps. Taxed in Australia NOT the USA based on your residency and Australian tax laws (and the double tax agreement) . Full and final tax is here on worldwide income (no requirement to lodge in USA perhaps). Maybe a sign of an issue. Easily detected since IRS and ATO datashare extensively now. If you are NOT an AU resident taxpayer and subject to US alien taxation then perhaps taxed in USA. Maybe both with a credit for some of the US tax a possibility too.

 

in review...wait and see

 

Unlikely a retrospective change would ever be implemented for something like tax residency changes....However the main residence issue poses a concern for this reason....

The CGT change to the main residence rules was passed with a start date in the Bill. If this was retained the GG could give assent but if it is to be changed the houses must both repass any changes and anew start date would be required for new laws being reintroduced. I believe the sole risk issue is the main residence issue NOT tests for residency.

Any changes to existing residency rules wouldnt apply to 2018. I would be 99% confident of completion of a 2018 tax return excepting the main residence issue which may need review IF the law gets adopted.

 

Paul I mentioned 20% LTCG tax rate here in the USA because the original poster is talking about moving to the USA (and it applies to us as we now live in New York as I've mentioned before).

eg....like I said we refuse to purchase further Sydney IP's while this draconian ATO change with no 50% discount for expats and instead invest in USA equities where we only pay 20% capital gains.

 

Thanks Terry.

As it has a mid-2019 implementation date in the law as passed I'm wondering if they will sneak it onto the books after the next election.

Either way if I was an expat moving to the USA.....I'd be selling my PPOR before I left Australia.

 

Agree always adjust your strategy based on your tax residency. Just part of the game.