Taxation of Expatriate "Expat" Foreign Income

Hidden away in the small print of the 2009 Budget papers was the removal of the 90 day income exemption rules. The changes will apply from 1 July 2009. The Changes will have a signifcant impact on expatriate "expat" Australians earning foreign income.

While exemptions from the changes will apply to government workers, charity workers, military and police personnel, the implications of the change will be significant:
  • When tax in the country where the income is earned is lower than Australia, affected taxpayers will pay more tax, in many cases receiving a bill at the end of the year.
  • Taxpayers will be required to record and maintain details of income earnings and relevant deductions while traveling overseas in order to prepare their Australian tax returns correctly and obtain maximum refunds.
  • ALL affected taxpayers will face extra compliance costs to lodge tax returns in Australia and claiming foreign income tax offsets.
  • Some taxpayers may be tax more than previously, depending on where they work
  • Affected taxpayers, many of whom will be backpackers earning extra income to support their travel, will need to seek assistance from tax professionals to complete their income tax returns
  • In some countries, like Saudi Arabia, where it is not easy to qualify as a resident, taxpayers who might otherwise stretch their overseas contracts to two years to avoid Australian tax, could be stung with a large tax bill.
It is important to note that not all expats will be effected. For those who are "non-resident" for "tax purposes", or who are happy to be considered so, will not be affected as there is no requirement for lodgement of an income tax return. The basic test for "non-resident" status is 181 day over seas.

Those expat Australian's affected by the changes will need to consider more sophisticated tax planning options. Recommendations we often make to clients in this category include:

  • Negative gearing and investment property - while there are significant tax savings associated with negative gearing, investment properties registered with the National Rental Affordability Scheme (NRAS) offer the additional benefit of $8000 tax credits per year - for ten years
  • Superannuation (either SMSF, retail or platform), even with some of the shine removed by the 2009 Budget, superannuation still offers tremendous scope for investment opportunities and tax savings.
My Tax Zone, in association with our affiliate partners in property and financial planning, are able to provide sound taxation advice and effective investment opportunities to taxpayers affected by the changes.
For further information contact David Maynard or David Fong on 07 3208 3888 or email dmaynard@mytaxzone.com.au.

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