Non Resident (expat) Rental Profits and Tax

Hi all,

We currently make about 10k per year in rental profit from our IP and, as a non-resident, I'm wondering what the best way is to reduce the tax on this given we do not qualify for the tax-free threshold so pay tax on income from $1.

The property is owned via a 50/50 split with my wife so I'm thinking that we each make a super contribution of $5k before eofy as a way to reduce tax on the profit.

Is that an accurate assumption or not? Any other suggestions?

Thanks in advance.

 

Is the rental income taxable in the jurisdiction you are tax resident of and has double taxation been explored?

 

From the Australian tax perspective a super contribution that meets deduction requirements may address Australian tax. Then consider foreign tax on that rent as that may still occur. A deduction for Super may be subject to a age based work test depending on age. And consider preservation.

 

not sure. we are in UK.

 

Well it’s possibly not if you are applying the remittance basis of taxation. Go seek UK tax advice on your residency.

 

for 10k net income you pay 32.5% of every dollar as an expat. easiest/best way is do do a concessional super contribution. so you pay 15pct on super instead, saving 17.5pct of tax. downside is this affect cashflow (you lock away money). given your net income i suspect you dont pay much interest ti achieve this so i suspect you do have surplus cashflow. depending on nature/age of IP make sure you get depreciation schedule as that could be large.

but tax year just passed. whatever you do now wont reduce what u have to pay in an material way.

 

thanks for confirming.
I made payments prior to end of FY into our super accounts. Haven't heard back from the accountant to confirm so went ahead with it anyway. I did leave it a bit late (last week of the FY) so not the best planning from me and no doubt its their busiest time of year so lessons learned.

Its actually pretty difficult to understand how best to set yourself up as an expat in terms of investing. There are some services offering advice but they are fairly expensive and probably targeted at those really high earners who are doing it for purely financial reasons rather than ones like me who do it for family or other reasons (i.e. spouse from another country so moving for them).

Anyway, thanks again.

 

you need to have submitted "notice of intent to claim" and your super must have confirmed this back in a letter. i trust your accountant is on top of this.

expat investing - sounds like you just recently left if so you may not have automatically become a non tax resident. speak to your advisor...

assuming you really are non resident i found little upside of share investment because of non resident withholding tax, and no franking credits. if i can redo it all again i would setup a family trust, use on-shore close relative as a company director and setup bucket company to receive proceeds maintaining tax residency. too late for me now but careful planning at initial stage is most important

 

Are the company with local director and family trust realistic options for non-residents? As an expat, i was of the understanding that tax or other issues are a deal breaker for using trusts for example. Generally speaking (I know i'd need proper legal/tax advice), am i wrong on that?

 

It is a requirement of the corporations act that a company have at least one director that is ordinarily resident of Australia. A relative could be put in as a co-director, but when the company is borrowing that will mean personal guarantees from all directors including the family member helping out.
A trust need not have a resident trustee, but it would be taxed as a foreign trust if it doesn't.

So practically speaking if a trust or company will hold property in Australia it would need to get finance before the person going overseas leaves.

 

Perfect, thats what i was after. Thanks Terry. Not what i was hoping for, but was my general understanding

 

It is possibly one of the easiest ways. As a non-resident the tax savings would be the non-resident rate of tax (32.5%) less the tax payable on a personal concessional contribution (15%). Net saving is a boost to retirement savings and saving 17.5% tax but its also preserved.

Note that the tax deduction notice requirements MUST be followed before a personal deduction is claimed. The contributions must be made within the same tax year but the notice requirements can be completed aftre the year ends provided it is done before lodgement. It is now a prefill data issue and more easily detected by the ATO if you dont follow the process

And no contribution to a smsf without advice !!