Late last year, legislative changes were made that exclude non-residents from accessing the main residence exemption. The retrospective changes directly impact foreigners and expats whose main residence is in Australia or overseas. We explore the impact.
Key Points
- Non-residents for tax purposes excluded from the main residence exemption from 9 May 2017
- Transitional rules allow non-residents to sell their property and access the main residence exemption under the previous rules (if they held the property continuously from 9 May 2017).
- An exclusion applies where the taxpayer has been a non-resident for 6 years or less and a ‘life event’ occurs, such as death.
CGT and the main residence exemption
Capital gains tax (CGT) applies to gains you have made on the sale of capital assets. Unless an exemption or exclusion applies, or you can offset the tax against a capital loss, any gain you made on an asset is taxed at your marginal tax rate. The tax triggers when a ‘CGT event’ occurs. For residential property, the ‘CGT event’ is generally the date the contract is signed.
The main residence exemption prevents CGT applying to your family home (the home you treat as your main residence). If the home was your main residence for only part of the time you owned it, or if you use your home to produce income (for example, you use part of the home as business premises or rent out part of the property), then a partial exemption may be available. In addition, if you move out of your home and you don’t claim any other residence as your main residence, then you can continue to treat the home as your main residence for up to six years if you rent it out, or indefinitely if you don’t rent it out (the ‘absence rule’).
Previously, the main residence exemption was available to individuals who were residents, non-residents, and temporary residents for tax purposes.
The new rules
The new rules exclude foreign residents from accessing the main residence exemption and apply to CGT events that occur from 9 May 2017 onwards.
Under the new rules, if you are a non-resident for tax purposes at the time you sell your main residence, you will no longer be able to access the main residence exemption and you will need to pay CGT on any gain you make (subject to transitional rules and an exclusion). These new rules apply regardless of whether you were an Australian resident for part of the time you owned the property and no apportionment applies – the exemption simply does or does not apply depending on your residency status for tax purposes at the time the CGT event is triggered.
However, if you are a resident of Australia at the time of the CGT event, then you may be able to access the main residence exemption, even if you have been a non-resident for some or most of the ownership period. For example, an expat who maintains their main residence in Australia could return to Australia, become a resident for tax purposes again, then sell the property and if applicable, access the main residence exemption (the new rules contain provisions that will deny the exemption where someone attempts to avoid the new rules by deliberately structuring their affairs to access the exemption – for example, transferring the property to a related party).
The new rules do not impact on Australian tax residents.
The transitional rules until 30 June 2020
Transitional rules are in place for non-resident taxpayers who would have been able to access the main residence exemption prior to the changes. The transitional rules enable someone who held property continuously from 9 May 2017 to apply the existing rules if the CGT event occurs on or before 30 June 2020. This gives non-residents a limited period of time to sell their property and obtain some tax relief under the main residence rules.
Exclusions to the new rules
If you would have been able to access the main residence exemption under the prior rules, and have been a foreign resident for six years or less, there is a limited exclusion to the new rules where certain ‘life events’ occur.
A ‘life event’ is generally:
- Your death or the death of your spouse or child (under 18 years)
- Terminal illness of you, your spouse or your child
- Marriage breakdown and divorce
Under these circumstances, the taxpayer is able to access the main residence exemption. For example, if you or your spouse dies while living overseas, it has been six years or less since you became a non-resident, and the property is treated as your main residence.
After six years however, the main residence exemption will not apply. That is, if you have been a foreign resident for tax purposes for more than six years, you or your beneficiaries cannot access the main residence exemption once the transitional period has ended unless you move back to Australia and become a resident again before the CGT event occurs.
Who is an Australian resident for tax purposes?
Working out whether or not you are a resident of Australia for tax purposes can be difficult as it requires the exercise of judgement rather than applying a single ‘black and white’ test. Many people believe it is just a matter of how much time you spend out of the country but this is not always the case. There are four tests that are used to work out your residency status:
- Resides test – The first test looks at whether you reside in Australia. For example, are you moving out of the country permanently and migrating, or just moving away for a while? The actions you take help determine this test. For example, do you appear to have cut your ties with Australia (sold your furniture as opposed to being in storage, closed memberships, etc.,)
- Domicile test – The second test looks at your where you are living and where you have your permanent home. Someone who was born or migrated to Australia will generally retain their Australian domicile unless they leave Australia permanently. Someone with an Australian domicile will be treated as a resident for tax purposes unless they can show that their permanent home is overseas. There are a range of factors to consider in order to determine whether someone’s permanent home is overseas. For example, is your home overseas permanent or temporary (like a hotel)?
- 183 day test – Assuming you are not already considered to be an Australian resident by the other tests, the 183 day test looks at how long you are physically present in Australia during a particular income year.
- Superannuation test – If you are a current member of certain superannuation funds covering Commonwealth Government employees then you will generally be considered a resident for tax purposes regardless of how long you intend to live overseas.
The residency tests can be confusing. If you are uncertain, you should seek advice to clarify your position.
Common questions
I have been living overseas for the last 5 years for work. I am a non-resident for tax purposes but my main residence is in Australia. My house, which I bought in 2005, is being rented out while I am overseas. Now what?
If you own a property in Australia that used to be your main residence, you can use the absence rule to maintain the exempt status of your property just in case you decide to return to Australia. When you return permanently to Australia and decide to sell, you may be able to access the main residence exemption (or a partial exemption). If you rent out your property while you are away, the absence rule allows you to treat the property as your main residence for up to six years.
If you sell the property while you are a non-resident, you will no longer be entitled to the main residence exemption or a partial exemption unless you enter into a contract and sell the property prior to 30 June 2020. Similarly, if you die while overseas, and your home is sold within two years of the date of your death, it’s unlikely that your beneficiaries will be able to claim all or part of the main residence exemption.
If you intend to return to Australia and become a resident again at some point, there is no change to your position as a result of the new rules. If you remain overseas but enter into a contract to sell prior to 30 June 2020, your position is also unchanged under the transitional rules.
If you remain a foreign resident and sell the property after 30 June 2020, you will not be able to access the main residence exemption in part or in full.
My mother lives overseas after retiring four years ago and is a non-resident for tax purposes. The family home in Australia is her main residence. My sister is living in the home rent free. What happens if my mother dies? Can my mother gift the home to her children now and still access the main residence exemption?
After 30 June 2020, if your mother is a foreign resident for six years or less at the time she passes away, the main residence exemption she accrued continues to be available to the trustee or beneficiaries of the deceased estate that inherit the property.
If the trustee or beneficiaries sell the property within two years of your mother’s death, then the main residence exemption accrued by the deceased applies. If the property is sold more than two years after the date of death then the position is more complex.
If your mother passes away and was a non-resident for tax purposes for more than six years, then the main residence exemption she accrued does not pass to the estate or beneficiaries. However, if your sister inherits all or part of the property and continues to be her main residence then a partial exemption may apply on future sale if she is a resident of Australia at the time of the CGT event.
If your mother gifts the property to her children prior to 30 June 2020 then it may be possible to apply a full exemption under the main residence rules depending on the situation. If the property is transferred to the children after 30 June 2020 then the exemption won’t be available at all
Happy New Year! I hope you all had a wonderful Christmas, New Year and a well deserved break.
9 weeks to go:
There are 9 weeks until the 2020 Global Business Camp and the event is taking shape nicely. Thank you to everyone that has registered, I cannot wait to see you all at the event. Please read on for interesting tips that will help you drive your business into 2020. For those of you who have not registered yet, I truly hope you do. This will be an amazing 3 days of working on your business whilst having fun and the bonus is that it’s 100% tax deductible. I guarantee it will change your life for the better. You have nothing to lose apart from your time (see below for our guarantee).
Very Special Offer – VIP:
It will be a great 3 days working on your business with other like-minded business people from all over the country.
The full rate is $3,300 per person. However, your rate is only $1,980 per person which is a saving of 40% (saving of $1,320 per person) on the full price. This will truly be an event not to be missed. When registering please ensure you enter the code ‘SMITHINKMEM’ in the coupon code area on the registration form. That way you will receive this amazing price and see below about the guarantee and the free holiday.
10X return or your money back:
The 3 days will not disappoint with our structured 6 Secrets™ to a successful business process and all of the specialist speakers (refer attached information for more detail).
After attending and implementing the strategies and following the processes, if you do not receive a 10X return on your course investment we will refund your investment in full. That is right, we believe wholeheartedly in the process that we are happy to take all the risk away from you.
It would be great to see you there and any of your key management and sales teams.
Extra Special Offer This Event:
Apart from our money back guarantee (people that attend and implement the strategies and do not receive a 10X return on their course investment will be refunded in full) we are offering a special promotion where for anyone that registers before 12 February we will gift them this really special accommodation offer for a holiday in the below destinations.
RESEARCH SHOWS THAT THE TOP 2 “WANTS” THAT PEOPLE HAVE WITHIN THE NEXT 3 MONTHS ARE “VACATIONS & MONEY!”
So on the back of that I am making an investment and I am planning to offer free holiday accommodation for every delegate at the 2020 GBC. People just pay the Government fees and charges for each room at approx. $20USD per night and the value is between $1,000 to $2,000.
Destinations are as per below:
BALI – 7 NIGHTS
PHUKET – 7 NIGHTS
FIJI – 4 NIGHTS
VANUATU – 4 NIGHTS
KOH SAMUI – 7 NIGHTS
SYDNEY – 4 NIGHTS
MELBOURNE – 4 NIGHTS
GOLD COAST – 4 NIGHTS
BRISBANE – 4 NIGHTS
So apart from attending the business camp and getting many great ideas, meeting and networking with like-minded people and working on your business for 3 days with one of our team you get this as well. We will gift a voucher to everyone at the camp.
The hotels:
They are rated 4 Star by TripAdvisory, this means that some will be possibly 3 Star, as TripAdvisor has its own metrics. But I can assure you there’s no dodgy caravan parks, ha!
Rooms are available on a normal “genuine availability” basis, which of course means School Hols & Christmas etc are always going to be tight!
Summary:
- Event date – 23 – 25 March 2020 (9 weeks away).
- Location – Hilton Surfers Paradise.
- 100% tax deductible (flights, accommodation, incidentals and course investment).
- 100% money back guarantee – if you do not get 10X return on your course investment you should call on the guarantee.
- Free accommodation in 9 amazing destinations just by attending the camp.
- The 3 days will re-invigorate you and provide you with great ideas for your business.
- Network with other forward thinking and like-minded business people.
- Speakers – John Tsoulos (Business structure and customer service advocate), Paul Dunn (B1G1 and business guru), David Smith (Technology change specialist), Adam Houlahan, (Linkedin guru), Heather Yelland (Leadership expert)’, Mark Holton (The 1% change expert) and John Dwyer (Marketing enigma/magician).
- Refer to the attached pdf for more details on the program and speakers.
It is an interesting time out there and this year’s event is truly not one to be missed.
7 Tips:
Here are a few tips to think about before you attend the event. We will be working through all of these over the 3 days.
- Provide outstanding customer service
Providing outstanding customer service is critical to any business. According to Harvard Business Review, investing in new customers is between 5 and 25 times more expensive than retaining existing ones. Wow, that is huge.
Find out what are now the must do’s or non-negotiables to make you and your business stand out. Focusing on your existing valued customers is one of the most critical strategies.
- Boost your marketing efforts
With each year comes new marketing trends and if you don’t keep up and adjust your marketing strategy accordingly, you will not be able to capture the attention of users online or turn them into customers. Is your business’ social media marketing strategy ready for that?
Find out at the business camp what are the now must do’s or non-negotiables on social media and with all other forms of marketing. The key in today’s economy is to stand out from the crowd.
- Increase productivity
Many business owners wish they had more time in their day to get things done. To make your business more productive, you can work on becoming a faster, more organised worker. One of the greatest strategies for this is to automate processes.
Find out at the business camp how to do this and why this is so important in the day to day running and the long term value of your business.
- Delegate more tasks and grow your team
As a business owner, you might feel like you need to do everything yourself. Make 2020 the year you start delegating, hiring more staff or outsourcing so you can stop focusing so much on the day to day and focus more on truly growing your business.
Find out how to work ON your business and not just in it. We will show you why this is so important for your customers, team, your business and in turn for you.
- Get a grip on the financials
Before you can start looking at increasing your profits, you must know where you stand. Put systems in place to track incomes, expenses and even where time is spent.
Find out how you can get everything you need out of your financials and see how small changes can make significant impacts.
- Meet regularly/communicate
Host regular meetings with your team. These meetings can be daily or weekly. Planning is critical for nurturing a growing business.
Find out at the business camp how businesses that plan, meet and communicate have better results than the ones that do not.
- Put up your prices
You must understand the true costs of delivering a product or service. You may discover that your prices are too low. If your products or services are of a good quality, you should be able to easily increase your prices by 10 per cent without upsetting good customers.
Find out how to do this and why your customers/clients/patients will still appreciate the service.
Like I stated above, it’s an interesting time with increased competition and demanding customers. How are you going to make your business stand out from the crowd?
Now it is over to you.
Get organised (if you are not already) and join us at the next business camp. All of the above will increase your profits and in turn your business value.
The business camp will truly change your business and in turn your life.
If I told you I could provide you with something that guarantees to change your life what would you say? Most people would say how do I get it?
Well here is your risk free chance. It is truly up to you.
I look forward to hearing from you and off-course seeing you at the event.
Kind regards,
John and the Indigo Financial Team
The countdown to Christmas is now on and we’re in the midst of the headlong rush to get everything done and capitalise on any remaining opportunities before the Christmas lull. Busy period or not, Christmas causes a period of dislocation and volatility for most businesses. This dislocation and volatility mean that it is not ‘business as usual’ and for many businesses, it is the change that causes the problem.
1. Ho, Ho, No. The trading stock headache.
If business activity spikes over the Christmas period and you sell goods, then there is a temptation to increase stock levels. That makes sense as long as you don’t go too far. Too much stock post the Christmas period and you will either be carrying product that is out of season or you will have too much cash tied up in trading stock. Try to work with suppliers who can supply on short notice. Better yet, see if some of your suppliers will supply you on consignment where you only pay them once the stock is sold. It might be better to miss a few sales than carry a trading stock headache into the New Year.
Managing your trading stock is not just about managing cost, consumers will go online if they cannot find what they need in store. Some savvy retailers are capitalising on this with opportunities to purchase online while instore if stock is not available or providing free shipping codes.
2. The discounting trend
Consumers now expect a bargain and can generally find one. The attraction of the Black Friday sales is that stock is generally available. Those waiting for bargains in the week immediately prior to Christmas, can only choose from what’s left.
If you choose to discount stock (or the market forces you to), it’s essential to know your profit margins to determine what you can afford to give away. A business with a 30% gross profit margin that offers a 25% discount (certainly nothing unusual about that in today’s market) needs a 500% increase in sales volume simply to maintain the same position. The result generally is that often businesses trade below their breakeven point and generate losses. So, think carefully about your strategy and what you can sustain.
3. The Christmas cost hangover
Costs tend to go up over Christmas. More staff, leave costs, downtime from non-trading days, as well as increased promotional costs all mean that the cost of doing business increases. Keep an eye on them. It’s great to get into the Christmas spirit as long as you don’t end up with a New Year hangover.
Many businesses also bring on casual staff. It’s essential that you pay staff at the correct rates and meet your Superannuation Guarantee obligations. Under the Retail Award, the rate for adult casuals (21 and over) start at $26.76. There is also a 3 hour shift minimum for all casuals regardless of whether you send them home early. Check the pay calculator to find the correct rates.
4. New Year cash flow crunch
The New Year often leads into a quieter trading and tighter cash flow period. The March quarter tends to be the toughest cash flow quarter of the year. You will need a cash buffer going into the New Year. Don’t over commit yourself in the run up to year end and end up in trouble in the New Year.
5. Take a lesson from Scrooge
If you work with account customers, start your debtor follow up now. If your customers are under any cash flow pressures, the Christmas period will only increase that pressure. The creditors who chase hard and early will get paid first. Don’t be the last supplier on the list; the bucket may be empty by then.
Christmas is a great time of year. Just don’t get caught up in the rush and let things get out of control.
Employees with multiple employers can now opt-out of superannuation guarantee from all but one employer.
Employers are required to pay 9.5% superannuation guarantee for all eligible employees. But what happens if you are an employee with multiple employers? Until recently, these compulsory payments meant some employees risked unintentionally breaching their concessional contributions caps. New laws however provide a potential solution.
Legislation that passed Parliament late last month allows an employee to apply to the Commissioner of Taxation for an employer shortfall exemption certificate to opt-out of the SG system for specific employers. This certificate prevents their employer from having a superannuation guarantee shortfall if they do not make superannuation contributions for the period covered by the certificate.
It’s important to note that the exemption certificate does not require the employer to stop paying SG, it merely protects them if they fail to make SG payments. The employer may choose to continue paying SG – either because they could not reach an agreement with the employee on their total remuneration package once SG is removed, or the administration required to exclude an individual employee is too onerous.
The Commissioner will only issue an employer shortfall exemption certificate where:
• The taxpayer is likely to exceed their concessional contributions cap for the financial year (just because you have multiple employers does not mean you can opt out of SG), and
• At least one employer is paying SG for the employee.
The Commissioner might deny the certificate if it’s not appropriate, the application would significantly reduce the amount of SG by an amount larger than necessary (for example, opting out of SG from the largest of the multiple employers), or where there is a contrived arrangement to take advantage of the new rules.
The due date for the employer shortfall exemption certificate is 60 days before the first day of the quarter to which the application relates.
Before applying for a certificate, it’s important to understand the impact of opting out of SG. You will need to negotiate your total remuneration package with your employer and the impact of this on your tax position, understand the tax outcomes if you did nothing and exceed your contributions cap, and the impact on your retirement savings over time.
How employers are being caught out by the timing of superannuation guarantee payments.
Employers can generally only claim a deduction for superannuation contributions in the income year in which the contribution is made. Super contributions are made when the payments are received by the trustee of a complying superannuation fund.
It’s not uncommon for employers to be caught out by timing problems, many in the belief that the contribution has been made at the point the payment is made rather than when it is credited to the superannuation fund provider’s account. Many forms of electronic transfer however are not guaranteed to be automatic or next day. BPay for example may take up to 2 days, a delay that is often not factored in.
A new practice statement from the ATO highlights the problem created by the use of clearing houses.
There is a specific element of the law that enables payments made to the Government’s Small Business Superannuation Clearing House (SBSCH) to be accepted as contributions when the clearing house receives them, rather than when the trustee of the superannuation fund has received the contribution. The SBSCH is only available to small businesses with 19 or fewer employees, or with an annual aggregated turnover of less than $10 million.
Private clearing houses are treated differently and as such, employers need to allow sufficient time for their superannuation contributions to be received, processed and paid by the clearing house to the superannuation fund, before their SG obligation is discharged.
Take the example of an employer who brings forward superannuation contributions before 30 June to be able to claim the tax deduction in that year. If a private clearing house was used, and time was not allowed for the clearing house to process the payment, and as a result the payment was not received by the trustees before 30 June, then the deduction cannot be claimed until the next financial year.
The investment strategies of Self Managed Superannuation Funds (SMSFs) are under scrutiny with the Australian Taxation Office (ATO) contacting 17,700 trustees about a lack of asset diversity.
The ATO is concerned that, “a lack of diversification or concentration risk, can expose the SMSF and its members to unnecessary risk if a significant investment fails.”
This does not mean that you must have diversity in your fund. A lack of diversity might be a strategic decision by the trustees but you need to be able to prove that the strategy was an active decision. Section 4.09 of the Superannuation Industry (Supervision) Regulations require that trustees “formulate, review regularly and give effect to an investment strategy that has regard to the whole of the circumstances of the entity.” To do that you need to:
- Recognise the risk involved in the investment, its objectives and the cash flow of the fund
- Review the diversity of the investment strategy (or otherwise) and the exposure of a lack of diversity
- Assess the liquidity of the investment and cashflow requirements of the fund
- Assess the ability of the fund to discharge its liabilities, and
- Review and have in place appropriate insurance cover for members and assets
Importantly, you need to be able to justify how you formulated your strategy if the ATO asks.
The 17,700 people being contacted by the ATO hold 90% or more of the fund’s assets in a single asset or single asset class.
Property is one of the problem areas the ATO is looking at. With property prices at a low point, the asset value of many funds has diminished.
In addition, debt taken on by SMSFs has significantly increased. The number of SMSFs using Limited Recourse Borrowing Arrangements (LRBAs) to purchase property has increased significantly from 13,929 (or 2.9% of all SMSFs) in 2013, to 42,102 (or 8.9% of all SMSFs) in 2017. For SMSFs that have purchased property through an LRBAs, on average, these LRBAs represent 68% of total assets of the funds.
LRBAs are most common in SMSFs with a net fund size (total assets excluding the value of the amount borrowed) of between $200,000 and $500,000. In 2017, the average borrowing under a LRBA was $380,000 and the average value of assets was $768,600.
It’s not uncommon for landlords to be confused about what they can and can’t claim for their rental properties. What often seems to make perfect sense in the real world does not always make sense for the Australian Tax Office (ATO).
In general, deductions can only be claimed if they were incurred in the period that you rented the property or during the period the property was genuinely available for rent. This means a tenant needs to be in the property or you are actively looking for a tenant. If, for example, you keep the property vacant while you are renovating it, then you might not be able to claim the expenses during the renovation period if it was not rented or available for rent during this time (there are some exceptions to this general rule). There needs to be a relationship between the money you make and the deductions you claim. Here are a few common problem areas:
Interest on bank loans
Only the interest on repayments for investment property loans, and bank charges, are deductible – not the actual loan itself. Also, if a loan facility is used for multiple purposes then only some of the interest expenses might be deductible. For example, if some of the loan is used to acquire or renovate a rental property but further funds are drawn down to pay for a holiday then this is a mixed purpose loan and an apportionment needs to be undertaken.
Repairs or maintenance?
Deductions claimed for repairs and maintenance is an area that the ATO is looking very closely at so it’s important to understand the rules. An area of major confusion is the difference between repairs and maintenance, and capital works. While repairs and maintenance can often be claimed immediately, the deduction for capital works is generally spread over a number of years.
Repairs must relate directly to the wear and tear resulting from the property being rented out. This generally involves restoring a worn out or broken part – for example, replacing damaged palings of a fence or fixing a broken toilet. The following expenses will not qualify as deductible repairs, but are capital:
- Replacement of an entire asset (for example, a complete fence, a new hot water system, oven, etc.)
- Improvements and extensions where you are going beyond the work that is required to restore the property back to its former state
Also remember that any repairs and maintenance undertaken to fix problems that existed at the time the property was purchased are not deductible, even if you didn’t find out about the problem until later.
The sharing economy
The deductions you can claim for ‘sharing’ a room or an entire house are similar to rental properties. You can claim tax deductions for expenses such as the interest on your home loan, professional cleaning, fees charged by the facilitator, council rates, insurance, etc. But, these deductions need to be in proportion to how much and how long you rent your home out. For example, if you rent your home for two months of the financial year, then you can only claim up to 1/6th of expenses such as interest on your home loan as a deduction. This would need to be further reduced if you only rented out a specific portion of the home.
Friends, family and holiday homes
If you have a rental property in a known holiday location, the ATO is likely to be looking closely at what you are claiming. If you rent out your holiday home, you can only claim expenses for the property based on the time the property was rented out or genuinely available for rent and only if the property was not actually being used for private purposes at that time.
If you, friends or relatives use the property for free or at a reduced rent, it is unlikely to be genuinely available for rent and as a result, this may reduce the deductions available. It’s a tricky balance particularly when you are only allowing friends or relatives to use the property in the down time when renting it out is unlikely.
A property is more likely to be considered unavailable if it is not advertised widely, is located somewhere unappealing or difficult to access, and the rental conditions – price, no children clause, references for short terms stays, etc., – make it unappealing and uncompetitive.
Five years ago, the Australian Taxation Office (ATO) offered a penalty amnesty on undisclosed foreign income. Five years on, the ATO has again flagged that underreporting of foreign income is an issue but this time the gloves are off.
How you are taxed and what you are taxed on depends on your residency status for tax purposes. As tax residency can be different to your general residency status it’s important to seek clarification. The residency tests don’t necessarily work on ‘common sense.’ For tax purposes:
- Australian resident – taxed on worldwide income including money earned overseas (such as employment income, directors fees, consulting fees, income from investments, rental income, and gains from the sale of assets).
- Foreign resident – taxed on their Australian sourced income and some capital gains. Unlike Australian resident taxpayers, non-resident taxpayers pay tax on every dollar of taxable income earned in Australia starting at 32.5% although lower rates can apply to some investment income like interest and dividends.There is no tax-free threshold. Australian sourced income might include Australian rental income and income for work performed in Australia
- Temporary resident – Generally, those who have come to work in Australia on a temporary visa and whose spouse is not a permanent resident or citizen of Australia. Temporary residents are taxed on Australian sourced income but not on foreign sourced income. In addition, gains from non-Australian property are excluded from capital gains tax.
Just because you work outside of Australia for a period of time does not mean you are not a resident for tax purposes during that period. And, for those with international investments, it’s important to understand the tax status of earnings from those assets. Just because the asset might be located overseas does not mean they are safe from Australian tax law, even if the cash stays outside Australia. Don’t assume that just because your foreign income has already been taxed overseas or qualifies for an exemption overseas that it is not taxable in Australia.
How your money is being tracked
A lot of Australians have international dealings in one form or another. The ATO’s analysis shows China, the United Kingdom, Switzerland, Singapore and the United States are popular countries for Australians.
The ATO shares the data of foreign tax residents with over 65 foreign tax jurisdictions. This includes information on account holders, balances, interest and dividend payments, proceeds from the sale of assets, and other income. There is also data obtained from information exchange agreements with foreign jurisdictions.
In addition, the Australian Transaction Reporting and Analysis Centre (AUSTRAC) provides data to the ATO (and the Department of Human Services) on flows of money to identify individuals that are not declaring income or paying their tax.
It’s not uncommon for taxpayers to forget to declare income from a foreign investment like a rental property or a business because they have had it for a long time and deal with it in the local jurisdiction with income earned ‘parked’ in that country. However, problems occur when the taxpayer wants to bring that income to Australia, AUSTRAC or the ATO’s data matching picks up on the transaction and then the taxpayer is contacted about the nature of the income. If the income is identifiable as taxable income (for example, from a property sale or income from a business), you can expect the ATO to look very closely at the details with an assessment and potentially penalties and interest charges following not long after. There is no point telling the ATO the money is a gift if it wasn’t, they can generally find the source of the transaction and will know it’s not from a very generous grandmother – misdirection is only going to annoy them and ensure that there is no leniency.
What you need to declare in your tax return
If you are an Australian resident, you need to declare all worldwide income in your tax return unless a specific exemption applies, although in some cases even exempt income needs to be reported. Income is anything you earn from:
- Employment (including consulting fees)
- Pensions, annuities and Government payments
- Business, partnership or trust income
- Crowdfunding
- The sharing economy (AirBnB, Uber, AirTasker etc.,)
- Foreign income (pensions and annuities, business income, employment income and consulting fees, assets and investment income including offshore bank accounts, and capital gains on overseas assets)
- Some prizes and awards (including any gains you made if you won a prize and then sold it for a gain), and
- Some insurance or workers compensation payments (generally for loss of income).
You do not need to declare prizes such as lotto or game show prizes, or ad-hoc gifts.
Do I need to declare money from family overseas?
A gift of money is generally not taxable but there are limits to what is considered a gift and what is income. If the ‘gift’ is from an entity (such as a distribution from a company or trust), if it is regular and supports your lifestyle, or is in exchange for your services, then the ATO may not consider this money to be a genuine gift.
I have overseas assets that I have not declared
Your only two choices are to do nothing (and be prepared to face the full weight of the law) or work with the ATO to make a voluntary disclosure. Disclosing undeclared assets and income will often significantly reduce penalties and interest charges, particularly where the oversight is a genuine mistake.
How to repatriate income or assets
Before moving funds out of an overseas account, company or trust it is important to ensure that you seek advice on the implications in Australia and the other country involved. This is a complex area and the interaction between the tax laws of different countries requires careful consideration to avoid unexpected consequences.
Whether it is evolving technology or changing consumer expectations it’s a fast-paced and highly competitive environment out there so, it is important that you stay ahead of the game. Here are some ideas, tips and trends to look out for.
Personalisation will be critical
Personalisation is important for customers, as it helps to make them feel like you care about them. Some ways to do that for example are – going the extra mile to include a thank you note in purchases, and addressing customers by their preferred name via email marketing, face to face and on the phone, walking a customer to your front door and thanking them for being a valued customer can all help to influence repeat business. After all, everyone likes to feel valued and as we must understand our customers are one of our most important assets in our business.
Taking it further, statistics show personalisation can boost email open rates and click-through rates, while consumers are more likely to be responsive to personalised offers and discounts.
- When an email is not personalized, 52% of customers say they’ll find somewhere else to go – Salesforce.
- 82% of marketers reported an increase in open rates through email personalization, 75% believe it yields higher click-through rates. – Adestra.
- 74% of marketers said that targeted messages and personalization of emails improves customer engagement rates. – eConsultancy.
Customer reviews and word of mouth can be a powerful influencer for new business
There’s nothing like the persuasive effect of peer opinions when it comes to swaying a potential customer’s buying decision. Research highlights that 91 % of people regularly or occasionally read online reviews, and 84 % trust online reviews as much as a personal recommendation. This is why including testimonials and customer reviews on your website and on other marketing collateral will become increasingly important now and in the future.
So, why not take every opportunity to build and highlight a number of positive reviews. Some examples – invite customers to take a customer satisfaction survey after making a purchase, as many as 68 % of customers could leave a review if asked.
Listening to your customers is the best way to improve your business — and get ideas for new services/products. And, if you do receive a negative review, take this as an opportunity to gain valuable insights for improvement, as well as a second chance to turn an unhappy customer into a satisfied one or a raving fan. Bad reviews are a huge opportunity, not a problem. The opportunity once a negative comment or bad feedback comes in is to address it and turn it around. The customer will then be even more impressed and will typically tell people about the great experience.
Cybersecurity is essential
Recently the World Economic Forum revealed that cyber-attacks are now in the top five risks to doing business. The scary thing is that they are becoming a growing concern, largely because it’s easier to launch an attack thanks to the sprawling internet of things and increasing digitisation.
Now and into the future, it will be crucial to have sophisticated cybersecurity measures in place for your website and business online presence while ensuring they’re kept up-to-date to help minimise the risks to your business and customers.
When choosing website security elements for your website, look to a provider who can offer around the clock support and increased protection.
The Rise Of Experiential Retail
We are living in the experience age. The old model was one of in-store (and even online) retail strictly focused on products being sold. However, over the last 5 or so years consumers have slowly but surely been moving away from strictly shopping for products, instead seeking a more engaging experience. The trend has been driven largely by millenials and their preference for experiences over things.
Even so, simply remodeling a store isn’t enough. There are shop closures every day and the brands that do survive will have done so by creating great experiences. Stores like Sephora, for example, have rethought their stores by combining traditional elements with mobile apps and activities that are completely unrelated to making a purchase. Samsung unveiled a $43 million “pop up” that features its products, but doesn’t have any for sale. Now that is different.
The emergence of virtual reality, augmented reality, and improved mobile technology will continue to push retail brands to add layers and new experiences to their traditional retail models.
Shipping will continue to be a major opportunity
This isn’t as they say sexy news, but it is a very important way to differentiate your business from the crowd. The competition for the fastest and most cost-effective shipping options may not be news but convenient and efficient delivery solutions are still one of the most popular ways in which businesses try to gain a competitive advantage. According to one survey, 91% of consumers said free shipping would make them more likely to be a repeat customer while 90% say free returns are very important. Zappos an on line retailer in the USA offers free shipping and free returns and they state that the pay-off is customer loyalty:”75% of sales come from repeat customers”. With these compelling statistics in mind, now could be the time to get your shipping methods ship-shape – that is if you haven’t already.
We truly hope the above trends and thoughts help you consider your business in depth and help you make changes where required.
The Global Business Camp event coming up on the 23rd to the 25th of March 2020 is vital in this dynamic time.
Do not miss out, register on the link below now and pay the event off over the next 7 months. Find out how to tackle the above and much more.
Thanks,
John
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