Tax Implications for Individuals When Moving to Australia – Part 2
21 July 2022
In the second of two articles, David Baumgartner, Managing Partner at accounting firm Baumgartners in Melbourne and Brisbane shares the tax consequences specific to individuals who establish a tax residence in the country.
In my last update, I wrote about the tax implications of an individual migrating to live in Australia with simple affairs and no business complications. In this article I cover in a general nature, the impact on an entity, when an individual who moves to Australia is involved with that entity.
1. A company incorporated overseas is not considered a resident (and thus taxable) in Australia unless its central management and control is in Australia. The concept of “central management and control” has been the source of constant litigation in our courts. If someone becomes a tax resident of Australia, this concept may need to be considered even if there are several shareholders and directors remaining overseas. Recapping: an individual who intends living in Australia for at least 6 months in a permanent location will be considered a tax resident of Australia, regardless of their visa status
2. A foreign trust settled overseas is not considered a resident of Australia unless one of its trustees is a tax resident of Australian. Thus, an individual trustee migrating to Australia could cause the trust to be subject to Australian tax laws once they become an Australian tax resident.
3. Cash received by an Australian tax resident from a foreign entity that has not been caught under 1 & 2 above, is likely to be assessable to that Australian resident. Careful planning should be taken before migrating to Australia to address this.
4. Australia has an attribution regime that taxes income earned by a controlled foreign company (CFC), or a foreign investment fund (FIF). The regime is effectively an anti-deferral integrity measure. Its implications are that income may be taxed to an Australian tax resident regardless of whether it is physically received from these entities or not. This is a complex regime and an individual migrating to Australia with a continuing interest in foreign entities, would be wise to seek advice in advance.
5. Gains and losses on conversion to AUD of foreign currency loans, bank accounts and other financial instruments, will have tax consequences. It is worth noting there are only limited exemptions such as purely private accounts.
The message to take from all of this is, before moving to Australia for more than 6 months, you MUST seek advice to avoid unintended consequences.
For more information contact David Baumgartner at dkb@baumgartners.com.au
Futher Reading:
Loans and gifts received from overseas entities
Tax implications for individuals when moving to Australia – part 1
About Baumgartners:
Baumgartners based in Melbourne, Australia, is an entrepreneurial firm of Chartered Accountants, Chartered Tax Advisers and strategic business experts who truly believe in building successful relationships. They are an energetic and passionate firm of professionals with a breadth of technical expertise. Combined with real business experience, this sets them apart from the rest.
Their practice is growing rapidly because of their genuine approach to client service, the exceptional results achieved, and emphasis on people and relationships. An integrated full-service approach to strategic planning and a broad range of services provided, from accounting and taxation through to business consulting, superannuation, growth and wealth management strategies, financial planning, asset protection and risk minimisation strategies.