Australian expatriates are to watch their tax obligations

There are tax issues for Australians living overseas but who want to buy property back home.

It in important the familiarise themselves with Australian tax obligations to avoid nasty surprises from the ATO.

Among the first things to establish is the tax residency status. They will be treated as tax resident of Australia if they meet certain criteria.

Some of the things that determine residency include nationality, where you were present and for how long, where you have a home, and your economic and business ties with the country. 

If you have stayed in Australia for more than six months of the financial year (1 July to 30 June), you will be a tax resident of Australia.

Then there's the domicile. If your domicile remains in Australia and you do not have a permanent place of residence overseas, you will be treated as an Australian tax resident.

If you are a tax resident of Australia, your worldwide income and capital gains are generally subject to Australian tax.

For non-residents, only income earned in Australia and capital gains on ‘Taxable Australian Property’ are taxable in Australia. Any income or capital gain from a property in Australia will always be treated as having been sourced in Australia, hence taxed.

Also watch out for countries with Double Tax Agreement (DTA) with Australia, where the provisions of the DTA may override the domestic law in both Australia and the other country.

If the other country also taxes the same income or capital gain, Australian tax rules generally provide a foreign income tax offset on any foreign tax paid on the same income or capital gain.

There is no substitute for professional tax advice.

Take the common example of an Australian expatriate who buys a home back in Australia while still resident of another country, including for tax purposes.

The house rented until the expat eventually returns to Australia, when it will become the family’s home.

The capital gains tax (CGT) treatment when the home is eventually sold will be influenced by the length of time when the property was not the expat’s main Australian residence.

An expat’s CGT position after owning the property for 10 years but home for only the final two of those years, would, according to Joe Galea, property tax partner for accountants Deloitte in Sydney, see a fifth of any net capital gain taxable.