Technology and Pandemic Combine to Create Tax Issues

Advancing technology is rapidly bringing possibilities to the workforce that once seemed to be nothing but science fiction. AI (artificial intelligence), virtual reality, data communications, augmented reality, and more sophisticated automations are already making their mark to various degrees.

In addition, the COVID19 pandemic has seen hundreds of thousands of Australians return from abroad. Many of those returning may be able to continue working for their foreign employers.

What does this all mean?

With the rise of the internet and global e-connectivity many organisations in finance, information technology, telecommunications and professional services had been realising that their employees did not have to be physically present in the workplace to perform their job function.

Even before the pandemic that trend had well and truly commenced. The enormous outsourcing industry has been a testament to that. The necessity of lockdowns should accelerate that trend.

Working for foreign employers from Australia

An increasing number of Australians will be able to take advantage of continuing permanent employment opportunities, not with domestic employers but with overseas employers.

When you are a tax resident in one country, but your sole source of income is from another country, you may find that not only do you face double the tax administration, but if the correct advice is not taken you may face higher effective rates of taxation.

As more of these scenarios emerge, there will be a need to obtain tax advice from advisors who are experienced with addressing these issues.

Managing companies ‘remotely’

If you are a director of a company and have returned to Australia due to the pandemic, unavoidable issues will arise if you are required to manage the affairs of a foreign company from Australia.

Corporate tax laws stem from over one hundred years of legal history and they are not about to change any time soon to accommodate modern times. Australia’s laws around corporate residency are well understood and the reality is that if you are a controlling director of a foreign company and you have returned to Australia, you should seek tax advice in relation to how Australia’s tax laws apply to foreign companies.

The consequence of not seeking detailed advice is that the foreign company in question might be a resident of Australia and its profits might be subject to Australian corporate tax depending on the situation.

If you are a controlling shareholder of a foreign company, you might also find that Australia’s tax laws will attribute some or all of the company’s profits to you even if a dividend is not paid to you. This outcome can arise depending on the facts, because of Australia’s Controlled Foreign Company rules.

Changing the way you interact with your accountant

If you are working for a foreign employer from Australia, there will be a need for income tax advice to ensure that you properly plan for tax outcomes and are not caught out with unexpected tax bills.

Keeping in touch with your accountant more regularly to plan your position will be increasingly important if you find yourself in this situation.

OECD Guidance on Potential Tax Consequences of COVID-19 Work and Travel Restrictions Keeping Australians Overseas

For many businesses, investors, and travellers, international travel is a regular, or important part of life. When 2020 started there were only very vague whispers that something was lurking over in China. Otherwise, travel, and travel plans, went on as usual. However, things very quickly escalated as COVID-19 began to spread around the world, with country after country swiftly and suddenly imposing international travel bans and local movement restrictions.

With an estimated 1 million Australians living and travelling overseas, many have found themselves trapped in inaccessible areas or unable to find a flight back home. Equally many Australian expats have found themselves back in Australia unable to leave Australia temporarily.

From a tax perspective this does lead to the question of what tax consequences arise in these situations.

OECD Guidance

The OECD has released some guidance on what this could mean from a tax perspective. The following notes are based on the 3 April 2020 version of this advice.

Unintentional Creation of a “Permanent establishment” for Businesses Through Employees Stranded Overseas

It is considered unlikely that individuals who have been dislocated overseas and are working from a residence overseas during this crisis, will be seen as creating a permanent business establishment overseas. This is an exceptional situation where employees may temporarily be working in a different location for a long time.

In general, an isolated individual who is required to work from an overseas home is only working there on intermittent business activities and not creating a place of business that is used on a continuous basis to carry out the tasks of an enterprise. The situation is out of the control of the business, where the normal place of work is inaccessible.

However, it is also important to consider the domestic laws in the country where an employee is working during this time. Domestic laws may have different requirements in place, may not be adequately covered by a double tax treaty, or may not have legislated exemptions specific to the COVID-19 travel restrictions. It is therefore important to obtain advice specific to the country in which an employee is working during the COVID-19 travel restrictions.

It is also important to note that if an employee was habitually concluding contracts overseas on behalf of the business back in their home country, before COVID-19 travel restrictions were imposed, that they may be treated differently for tax purposes.

Could the Residence Status of a Company be Impacted when the Effective Place of Management has been Displaced Overseas During COVID-19 Travel Restrictions?

Some businesses may have found that their chief executive officers or other senior executives are stuck in a country other than the company’s country of residence, for the duration of the COVID-19 restrictions. This leaves those businesses concerned that there is effectively a relocation of management to an overseas location, which could in turn impact the company’s tax residency status.

Again the advice noted is that it is unlikely that situations created by COVID-19 restrictions will cause an unintended change in an entity’s status for tax residency. This is because the change in location of management is both an extraordinary and temporary situation due to an emergency situation.

Tax treaties typically contain tie breaker rules that should ensure this remains the case. In particular it is noted that the key to determining the location of management is the place where management usually occurs. This means a forced change of location of management during COVID-19 travel restrictions is unusual and exceptional, as well as temporary, in that the intention will be to resume usual operations once the travel restrictions are lifted.

Cross Border Workers

When a government is subsidising the wages of an employee who usually works in one location but is being paid while simply residing in another, from which country would this income be attributable?

The OECD Commentary indicates that this should be the place where the employee would otherwise have been working to earn their usual wages. This is because taxing rights are typically given to the place where employment duties are performed. Since the government payment is in relation to their normal employment duties, normal taxing rights apply to the source country. The country of residence would therefore be required to tax this income under the usual double taxation relief between the two countries.

Change of Residence Concerns

The OECD indicates that it is unlikely that the COVID-19 situation will affect the normal treaty residence position.

Australia, the UK, and Ireland, for example, have all issued guidance making it clear that where it is merely the exceptional circumstances of COVID-19 travel restrictions that are keeping non-residents within the country, this will not cause a change in tax residence.

However, it should be noted that such guidance has been qualified. For example, it is the ATO’s view that if a temporary change due to COVID-19 becomes permanent, then all the usual income tax issues will need to be confronted.

Business as Usual 

In general it appears that the OECD is suggesting that COVID-19 travel restrictions will not, by and large, result in changes to the usual measures and tax treatments that are in place.

This is because the COVID-19 restrictions are government mandated restrictions that are out of the control of the businesses and individuals who are impacted by them. They are exceptional circumstances imposed to deal with an emergency situation, rather than business as usual, and they will therefore only be temporary measures, even if they last for a lengthy period.

It should, however, be noted that all of these indications are general in nature and largely based on the model double taxation conventions as well as typical responses around the world to the COVID-19 travel restrictions and the way different countries are dealing with the issues that have arisen from this.

Specific tax advice should be sought from the local jurisdiction in which you are residing whilst under COVID-19 travel bans, as well as your Australian international tax specialists, to ensure that your specific situation, and the applicable double tax agreement and extraordinary circumstances are properly understood.

Commercial Rent Relief For COVID-19 Impacted Small Business Tenants

On April 7 2020 the government announced another stage of coronavirus economic support. This announcement was for commercial tenants who are affected by coronavirus. Many businesses have had to close their doors or operate at significantly reduced levels of sales at this time. These measures, combined with the previously announced economic packages, are designed to help many of these businesses survive this unprecedented crisis and lessen the overall economic impact from the pandemic. 

Who is Eligible to Claim Commercial Rent Relief?

There are two criteria that must be satisfied for a commercial tenant to be eligible for the rental reductions.

  1. The business must have a turnover of $50 million or less
  2. The business tenant must be eligible for and have applied for JobKeeper support

Summary of the Essential Components of Commercial Rent Relief:

The following applies to eligible tenants, for so long as the pandemic lasts and for a reasonable recovery period afterwards:

  • Landlords cannot evict tenants for non-payment of rent.
  • Rental prices cannot be increased (unless the lease agreement is based on a set percentage of business turnover and accordingly already fluctuates with business turnover).
  • Any savings on lease outgoings (council rate, land tax, insurance reductions etc) should be passed on to tenants.
  • A landlord must reduce the lease payments by at least the same percentage as the business’ turnover has reduced. This means if a business has lost 100% of their income their rental payment requirements are reduced by 100%. If a business has lost 50% of their income their rental payment requirements must be dropped at least 50%.
  • 50% of the rental reductions must be waived completely. Where a tenant’s business will unduly suffer if only 50% of their rental is waived, then the landlord is required to waive a higher proportion of the rental.
  • The other 50% (or whatever remaining percentage there is) of the reduced amount of rent, can be deferred. Any deferred rent must be repaid over a period of time that is no less than the remainder of the lease or 24 months, whichever is longer. Longer repayment terms, or additional rental waivers, should be agreed to where a tenant will not be able to continue operating under the minimum repayment requirements.
  • Tenants are able to waive a landlord’s obligations (listed above) if they are in a financial position to do so. This allows scope for tenants and landlords to reach their own individual agreement based on their own situation.
  • Both parties are expected to keep a clear, honest, and open line of communications between them to facilitate an ongoing relationship and work towards resuming normal business operations when possible.
  • Binding mediation is possible when tenants and landlords cannot reach their own agreement.

What Relief is Available for Commercial Tenants?

On March 29 2020, the government announced that actions were being made to place a moratorium on evicting tenants (in both commercial and residential property), for non-payment of rent due to job loss related to the coronavirus pandemic. Now the government has also made it clear that landlords are not entitled to draw down on any security for the property to cover costs during this period.

Under the additional measures announced April 7, the government confirmed that landlords are required to freeze rental increases. There is an exemption for businesses that are already operating under a retail lease where rent is paid based on a set percentage of turnover and accordingly fluctuates with turnover anyway. This restriction applies for the duration of the pandemic plus a “reasonable recovery period”. In addition, legislation has now been passed to ensure that landlords cannot apply any lease prohibitions or penalties relating to reductions in opening hours or ceasing trade as a result of the pandemic.

Where landlords receive reductions in charges such as land tax, council rates or insurance, they are required to pass on these savings to the tenants in the appropriate proportion per the terms of their lease. Where tenants are not able to trade (because their business premises has been closed during the pandemic), then the landlord should waive expenses relating to the general use of the property.

Most substantially, under this new scheme commercial landlords are required to reduce their tenant’s rental payment requirements in proportion to the reduction in their business. These rental reductions can be in the form of a combination of rental waivers as well as rent deferrals and can constitute up to 100% of the normal rental fee on a case-by-case basis.

The requirements state that rent reductions are proportioned based on the reduction in income that the business has experienced as a result of the coronavirus. However, tenants and landlords are able to reach their own agreement based on their own situation.

No fees, interest or charges can be applied to any rent waived or deferred.

Rent Waivers

Full waivers of rent are required to account for at least 50% of the reduction in rent payable. This means that at least half of the determined rental reduction must be completely waived by the landlord. This is just a minimum requirement. More than 50% of the reduction should be waived where failure to do so would impact the tenant’s ability to meet ongoing obligations. This should, however, be balanced with the landlord’s capacity to waive more than 50% of the temporary rental reduction.

If tenants have the capacity to continue to make their rental payments, or would be able to catch up on more than 50% of missed payments, then they are able to agree to waive the landlord’s requirement to provide a 50% minimum waiver on rental reductions. This gives the tenants and landlords scope to reach their own unique agreement.

Rent Deferrals

The remainder of rental reductions can be deferred. This means that rental payments are still required but can be put off with repayments being spread over the remaining time of the lease or a 24 month period, whichever is longer. This repayment term can be different if both parties agree to this.

Specifically, the repayment period is required to be no less than 24 months, even if the lease period does not extend this long. This helps ensure that large catch up payments are not too burdensome for tenants where their lease is ending within 24 months.

Example of Rental Reduction

This is an example of how a rental situation may apply to Sally’s clothing store:

  • Sally’s clothing store normally has a turnover of around $200,000 a month.
  • Her monthly lease on the shop is $20,000.
  • During the pandemic Sally closes her store and only offers deliveries to customers. She is now turning over $50,000, which is a 75% reduction from her normal level of turnover.
  • Sally’s clothing store applies for the Jobkeeper program, to both retain and pay the staff who have been stood down during this time and to supplement the wages of the few staff continuing to work to meet online orders and deliveries.

Since Sally’s business has seen a 75% reduction in turnover, she is guaranteed 75% cashflow relief on her lease (unless she agrees otherwise). Through discussions with the landlord Sally and her landlord agree to the basic provisions of the rental relief requirements. This means Sally is able to pay 75% less rent while the storefront remains closed, with 50% of the reduction being fully waived. This arrangement is to be reassessed monthly until operations can resume as normal.

This means that Sally now:

  • Pays her landlord $5,000 a month for her lease.
  • $7,500 of her rent is deferred and will be accumulated into a rental loan that needs to be paid back. 
  • $7,500 of her rent is waived. This portion of the rent will never need to be paid.

Let’s say the pandemic restrictions lasts for six months, after which time Sally’s clothing store is able to open its doors. When the shop reopens business is immediately seeing turnovers in excess of their previously normal levels of trade. This allows Sally and her landlord to agree that there is no need to extend their agreement to allow for a period of recovery. There is no reason to believe that the repayments of the deferred rent will impact Sally’s ability to continue operating the clothing store.

At this point Sally resumes paying $20,000 per month for her lease. She also has a $45,000 debt (6 months x $7,500) for deferred lease payments. At this point Sally has 30 months left on her current lease. Since this is longer than the minimum repayment time frame of 24 months, Sally is able to spread her repayments out over the full 30 months left on the lease. This means she pays an additional amount of $1,500 per month to catch up on the deferred payments.

Sally is free to make additional repayments to clear the deferred debt early if she agrees to do this with her landlord, however the landlord cannot require her to do this.

What are the Tenant Obligations?

Tenants are required to:

  • Communicate with their landlord to make appropriate arrangements.
  • Remain committed to the terms of their lease, subject to reasonable amendments made to enable to lease to continue through the pandemic.
  • Provide honest, open and accurate information to their landlord.
  • Not take advantage of the situation where they are in the capacity to continue normal payments, or operate with lesser reductions than the minimum required, particularly if their landlord’s situation makes it difficult for them to pass on the minimum required benefits.

Landlord and Tenant Relationships

Prime Minister Scott Morrison emphasised the need for landlords and tenants to be in communication during this time, in order to preserve essential business relationships and deal with the individual factors of each individual situation.

Landlords are legally required to discuss rental arrangements with their tenants and, according to Scott Morrison, refusal will mean they “forfeit their way out of the lease”.

In essence, the government is providing minimum legally required guidelines for tenants and landlords to help reduce the number of businesses who will not be able to financially get through this crisis. Businesses are expected to operate with integrity to support each other, meaning that parties can legally reach an agreement that either exceeds, or does not meet the minimum requirements, as long as both parties agree to it without coercion and the agreement does not put the tenant in a position where the arrangement makes it untenable for them to continue business operations. 

Support for Landlords

At this time the government has asked larger commercial landlords to seek support from their banks to help with these arrangements. This presently means seeking deferral of mortgage payments where necessary and applying for business loans if additional funds are required.

Unfortunately, this may mean that some commercial landlords, such small business landlords who have no savings and other sources of financial support may find their economic situation untenable, leaving them to seek alternative options such as selling.

There is currently no word if there will be further measures announced to alleviate economic stress for landlords, who are unable to remain viable under their obligations to waive rental fees for their tenants.

Mandated Code of Conduct for Commercial Leases

The government has released a mandated code of conduct for commercial leasing principles. You can find the full code of conduct here.

This code of conduct imposes a set of “good faith leasing principles” between the landlord and tenant in situations where the tenant is eligible for the JobKeeper program. These principles include guidance on arrangements including:

  • Requiring landlords and tenants to work together to facilitate the return of normal trade when this becomes possible.
  • Open, honest and transparent communication and exchange of information to achieve this goal.
  • Factoring in individual situations and circumstances on the impact that the COVID-19 pandemic has had, as well as a “reasonable recovery period”.

The code of conduct also covers the leasing principles that must be applied on a case-by-case basis. The principles cover the obligations and responsibilities of both the tenants and the landlords. This means that while landlords cannot evict tenants and must offer rental waivers and deferrals, tenants are also required to act in a reasonable manner, paying rent as they can and negotiating for suitable arrangements based on their actual situation.

What if Tenants cannot reach a suitable agreement with their Landlord?

Where the COVID-19 pandemic has resulted in the need for amendments and rental relief to be negotiated, but the landlord and tenant are not able to reach a suitable agreement between themselves, then the parties should follow the usual dispute resolution process that applies to their state or territory.

This process may lead to binding mediation between the two parties.

Both landlords and tenants are prohibited from using the mediation process just to stall the process to reach a reasonable agreement.

Residential Tenants

This announcement dealt with commercial properties only.

Residential tenancies are being dealt with by the state and territory governments.

Resuming Normal Business Operations

In summary, this means that many small business commercial tenants who are otherwise unable to stay afloat because of the impact of the coronavirus, are being thrown a life raft.

Lease reductions coupled with Jobkeeper support, and waivers in government fees, will be enough to help ensure that many businesses can get through this economic crisis. The aim of this is to facilitate the return of business as normal, as smoothly as possible, when it is safe to do so. While not all businesses will be saved by these measures and we can’t predict all of the potential complexities involved as we continue to witness the impact of this virus, this economic relief will go a long way towards helping many businesses return to normal when they can.

The Jobkeeper Package: Phase Three

On March 30 2020 the Australian government announced further measures to deal with the coronavirus shutdowns and social isolation requirements. These measures are primarily focused on helping businesses to retain their staff during slowdown and shutdown periods, instead of having to let those staff go.

The measures will help businesses who continue to operate at a lower capacity as well as those businesses who have had to temporarily shut down.

Eligible employers can make the claim for any eligible employee who they had on the books as of March 1 2020, as long as they continue to employ these staff members. They can also rehire workers that they have laid off since March 1 2020 and start paying them under the jobkeeper package. This is an alternative to those staff members going on unemployment benefits (jobseeker) and ensures the business is able to resume operations, with the same team of employees, when possible.

Please note that the legislation for this package has not been fully worked out yet. Some details may be unknown while the government works out some of the potential complexities involved in legislating this package. We will update the blog with relevant information when and as it becomes available.

Jobkeeper Package:

The jobseeker package is a payment that is being given to employers who have lost income due to the coronavirus.

This payment is essentially a subsidy to help them cover wages over the next six months.

It is a payment to the employer that is specifically made to reimburse the cost (or part of the cost) of employee wages. This means that if a business is already paying an eligible jobkeeper employee a wage of at least $1,500 a fortnight then there is no extra wages to be paid to that employee. However, if an eligible jobkeeper employee is currently being paid wages of less than $1,500 a fortnight, then the employer will need to increase that employee’s wages to $1,500 a fortnight for as long as they are receiving the jobkeeper payments for that employee.

This applies even if the business is paying employees not to work for the duration of a business shutdown required by the coronavirus safety measures. The measure is designed to keep people in their jobs and help boost the ability of a business to resume operations, with the same staff, once the coronavirus safety measures are lifted.

It is not a cash bonus. It is a wage subsidy being offered as an alternative to having to let staff go, whereby they would need to go on Jobseeker (welfare) payments to get by.

Note that individuals cannot be paid through the jobkeeper package and go on jobseeker at the same time. They also cannot be paid the jobkeeper wages by more than one employer- only their primary employer will be eligible to pay them through the jobkeeper provisions. 

You can read the government’s fact sheet on the jobkeeper package for employers here.

What is the aim of this package:

The aim of the jobkeeper package is to help businesses who have experienced a significant loss of income. By subsidising wages, it gives them a chance to keep their employees on board during the coronavirus safety measures.

For some businesses it provides an option for keeping staff on board even while they are not able to operate. This is because it includes businesses who have, or will have to, shut their doors due to the coronavirus. It means they can pay staff, even in a more limited capacity, while they stay at home. It also opens the opportunity for businesses with no income during the shutdown period to pay their regular employees to do some work from home in preparation for resuming business down the track. Ultimately, the measures help keep businesses connected to their employees instead of having to let them go.

For employers who are still operating, but with reduced levels of income, this measure will help ensure they can continue to pay their staff as normal without as much strain on their finances.

This measure will mean that many employees who were otherwise at risk of losing their jobs or relying on jobseeker (formerly Newstart) income, can now be paid a minimum of the jobkeeper payments through their employer.

While these measures will not cover everyone, it is a significant package that will help improve job security for many workers. Businesses whose income has dropped, but are still operating, will be able to use these payments to help ensure that the cost of wages does not lead to needing to lay off more staff. Businesses that have had to close down for the meantime can use these payments to support and stay connected with their employees in preparation of resuming normal business operations.

In some cases, individual long-term casual employees or part-time staff may find themselves being paid more than their usual wage. Other employees may now be getting paid less than their usual wage (for example because they were stood down after March 1), but more than they would be receiving on jobseeker (formerly newstart) benefits.

Who is eligible:

Business eligibility:

To be eligible for jobkeeper payments a business must:

  • Be an Australian business. This includes non-profit organisations and charities.
  • Have employed eligible staff who were on the books as of March 1 2020. This includes staff who were on the books as of March 1 but have since been let go, provided the business rehires them and has not paid out redundancies and termination packages.
  • If the business’ annual turnover is under 1 billion dollars, their income must have dropped, or be expected to drop, by at least 30% due to the coronavirus safety measures. This includes businesses that have had to close their doors at this time, provided they continue to employ their staff with the intention of continuing to operate when and as they are able to.
  • If a business had an annual turnover in excess of 1 billion dollars then their turnover must have dropped by at least 50% to qualify for the jobkeeper package.
  • Sole traders and individuals who are self-employed are also eligible to claim the jobkeeper payments if their business turnover has sufficiently reduced.
  • Businesses must not be subject to the Major Bank Levy.

It is your responsibility to self-assess eligibility due to a reduction in turnover. Turnover is compared to your business turnover over a comparable period a year ago. The period being compared must be at least one month long.

Based on the requirement to compare turnover to a year ago it would appear that only businesses that have been in operation for at least a year would be eligible to apply. We await clarity on whether businesses who have been in operation for less than a year can still qualify for the jobkeeper package.

If you run a business on the side and this business is not your primary source of income, then you will not be eligible for the jobkeeper package. Only the primary source of income (employer or self-employed business) is eligible to apply for the jobkeeper payments for each individual.

If your primary source of income is your work as a sole trader and you supplement this income with a small amount of casual work that you have held long-term, then you may be able to apply as a sole trader. In this situation your casual employer will not be able to claim for you.

Staff eligibility:

To be eligible the staff member must have been on the books as of March 1 2020

The measures include employees who are:

  • Australian citizens
  • At least 16 years of age
  • Holders of an Australian permanent resident visa
  • Special Category (Subclass 444) Visa Holders
  • Protected Special Category Visa Holders
  • Non-protected Special Category Visa Holders who have resided in Australia for 10 years or more

Eligible staff include:

  • Full Time employees
  • Part time employees
  • Casual employees who have been working for your business for at least 12 months.

You can only claim employees for whom you are their primary employer. This means if you have a long-term casual employee on the books, but this is their second job, you will not be able to claim the jobseeker payments for that employee. To reiterate, an individual employee cannot receive jobkeeper payments from more than one employer. This means only their primary employer is eligible to claim jobkeeper payments for employees who have more than 1 job.

Can I still claim if my business is less than 12 months old? Are there any other conditions under which I can still claim Jobkeeper for my employees if the comparative income period from 12 months ago has not dropped by 30% (or 50%)?

The short answer is yes.

The government has clarified that startup and high growth or variable businesses that have been negatively impacted by the coronavirus shutdowns and social isolation rules are still eligible to apply provided they have suffered a drop of income of at least 30% (or 50%) due to the coronavirus. 

The Commissioner has the discretion to use other tests to confirm that income has dropped by at least 30% (or 50%) on a self-assessed basis.

This will be easy to demonstrate if your business is one that has had to close its doors due to the coronavirus and you are no longer bringing in an income. You can submit a claim for the jobkeeper program if you would like to continue to employ your staff or rehire any staff that you stood down after March 1 2020.

If you are still operating your business then you can submit your application for the jobkeeper program provided you reasonably believe that your business turnover has dropped, or will drop, by at least 30% (or 50%) due to the coronavirus. The exact measures that can be used are not specified. You will initially be required to self-assess and it is likely that you will be required to submit evidence as to how you have worked this out. 

The government has confirmed that applications made in good faith that experience a downturn in income that does not quite hit the 30% (or 50%) decrease, will not be penalised. To be clear, you should only apply for jobkeeper if your business has experienced, or you believe it will experience, a substantial drop in turnover of at least 30% (or 50% if your business turnover exceeds one billion dollars a year), that is not related to normal seasonal fluctuations.

Keep in mind that this allowance is at the Commissioner’s discretion, which means the Commissioner has the authority to overturn self-assessments that are not considered to be justifiable and penalties may be applied if it was believed that a claim was not made in good faith. You should consult with your accountant and stay tuned for any further clarification if you are unclear whether or not your business turnover has suffered as a result of the coronavirus. 

When you are receiving the jobkeeper subsidy you will also be required to report monthly to ensure ongoing eligibility. 

The updated fact sheet can be found here

Examples of ongoing business that has lost income due to the coronavirus but not comparable to 12 months ago:

Example 1: 

Your turnover for the month of March last year was $30,000. This was a relatively normal monthly turnover at the time. In July you expanded your business operations after investing in a new product and opening a new storefront. Your business started to rapidly increase and you hired more staff to meet the needs of your business. By January you were now turning over $300,000 a month. 

By the time March operations commenced you were already noticing a downturn in trade and government requirements actually meant you had to close down your storefronts. You are only keeping the business going through online sales, which have dropped to $50,000 a month.

Your turnover is higher than it was in March last year, but has very clearly dropped significantly from the usual turnover levels you had been experiencing as a result of high growth and increased business presence through the year.

This business would be eligible to claim the jobkeeper package for all their eligible employees that were on the books as of March 1 2020. 

Example 2:

You opened a new boot camp business in November 2019. You were starting to pick up clients and by February 2020 you were running outdoor bootcamps for large groups. In March 2020 the government regulations meant that you could no longer operate bootcamps for large groups, however you could offer one on one sessions.

It is reasonable to believe that your income levels will be reduced by at least the 30% required, from March onwards, since you can no longer provide your service to large groups of people and you are halting any monthly memberships for people who cannot participate.

Self Employed/ Sole Traders:

If you are an eligible individual whose primary income comes from your own sole trader business, and your business meets the criteria of reduced turnover, then you can apply for the jobkeeper payments for yourself.

How do the payments work:

The government will pay your business a flat rate of $1,500 a fortnight per eligible employee. This is a flat payment per eligible employee, regardless of the amount of wages they are usually paid.

Any business who receives these payments must pass them on to their employees in full. If you normally pay your employees more than $1,500 then this payment simply subsidises part of their normal wages. If you normally pay an eligible employee less than $1,500, you are required to pay them the full $1,500 per fortnight while you are receiving jobkeeper payments for them.

Normal PAYGW provisions apply to the payments being made to your staff. However, if you are paying an employee $1,500 a fortnight and this exceeds their normal salary, you can choose whether or not you pay superannuation on the additional payments being made so far, as they relate to a compulsory jobkeeper top up rather than a payment for hours worked. 

Note that the jobkeeper payments are higher than the jobseeker payments. This gives incentive for workers to remain with their employers instead of moving on to welfare payments. The jobkeeper payments are not linked to any income or assets tests in relation to the individual employees. This means that many individuals who may not qualify for jobseeker payments due to, for example, their partner’s income, will now be able to continue to receive an income directly from their employer instead.

When will the payments be made:

Payments will start being rolled out from the first week of May. However, they will be backdated to March 30. Payments will continue to be made monthly in arrears. This means that to be eligible your business must be paying employees through the month, after which time you will be reimbursed $1,500 per eligible employee.

If you are an eligible business, you should start paying your eligible staff the required wages and you will be reimbursed. This means if your staff are being paid more than $1,500 a fortnight, simply continue to pay them as normal. If you need to rehire or increase an eligible employee’s wages to the jobkeeper rates, then you should do so as soon as practical.

You are able to claim jobkeeper payments for staff members who were on the books at March 1 2020 but have since been stood down. This means that you can reconsider your situation to determine if you can bring them back as employees under the jobkeeper package. To do so you will need to rehire them and be their primary employer. They will not be able to claim jobseeker payments and will have to amend their claim if they have already made one with Centrelink.

The government has indicated that the jobkeeper package will continue for a maximum of six months at this stage.

Are the jobkeeper payments taxable income?

Businesses who receive the jobkeeper payments will not be required to remit GST on the income. We cannot find a definitive statement about whether the income needs to be included in the annual income for income tax purposes, however since the payments are paid straight out as a wage expense, it seems likely that that it would count as both income and an expense for a net NIL effect on income taxes.

In the hands of the employee the jobkeeper payments are treated essentially as ordinary wages. The income comes in through the normal payroll system, is subject to normal PAYGW provisions and will be included on the annual PAYGW Summary.

How does my business register for jobkeeper payments:

It is up to the business (rather than the employees) to apply for jobkeeper payments. This is because the jobkeeper payments are given to the business to pass on to employees as wages.

Eligible employers should initially register their interest in applying for the jobkeeper package with the ATO. You can use this link to register.

Can I still get jobseeker (welfare) benefits if my employer enrols me through jobkeeper?

No. Individuals who are being paid by their employer through the jobkeeper measures will not be eligible for jobseeker (formerly Newstart) welfare benefits paid through Centrelink. This basically means that if your employer is able to keep you on the books through the jobkeeper package that this is where your income will come from. Since the jobkeeper payments are higher than jobseeker payments, it would be advantageous to remain employed where possible.

If you are unable to remain in employment then you would seek the jobseeker benefits through Centrelink instead. With the government temporarily lifting the income limits of a partner to $79,762 per annum, more people will now be eligible for jobseeker payments.

My Requirements as an Employer paying staff through Jobseeker

It is your responsibility to:

  • Assess if your business is eligible for jobkeeper payments due to a decrease in turnover or an expected decrease in turnover.
  • Register your interest for these payments with the ATO.
  • Ensure that eligible employees are notified that you will be paying them utilising the jobkeeper package.
  • Ensure that every eligible employee for whom you are receiving the jobseeker benefits is being paid wages of a minimum of $1,500 per fortnight (before tax). This means that if their wages are normally less than $1,500 a fortnight you will need to top up their payments to the jobkeeper amount.
  • Continue to pay your staff through your normal payroll system and report through STP.
  • Report to the ATO monthly on your eligibility to continue to receive the jobkeeper payments.

While normal PAYGW, superannuation and workers compensation requirements still apply, it is your decision as to whether or not you pay superannuation on any additional wage top ups that are paid out purely because of the jobkeeper payment.

Jobkeeper or Jobseeker

If you are an active sole trader, or a business who had employees on the books at March 1 2020 and you can continue to employ those employees, then the business can apply for jobkeeper subsidies through the ATO. You will only qualify if your income has dropped by at least 30% compared to the same period last year (or 50% if your annual turnover exceeded 1 billion dollars). Employees will then be paid a minimum of the $1,500 jobkeeper payments a fortnight, through their usual payroll system.

If you are a sole trader or a business who has to close down permanently or lay off staff, then the sole trader, or former employees, will individually need to apply for Jobseeker payments through Centrelink instead. The government has temporarily adjusted or removed certain waiting periods and testing limits to ensure that more people can qualify for assistance during this time.

If you are a casual or part time worker who is working for a business that is ineligible for the jobkeeper payments (because their turnover has not reduced enough or because you are a new casual employee) then you can also apply for the jobseeker benefits. If your income is below $1,075 a fortnight then, you may be entitled to a partial payment, as well as the government stimulus package bonuses.

Tax Residency issues amid COVID19 Pandemic

Australian expats who have been forced back to Australia because of the COVID19 pandemic, need to understand what returning to Australia might mean for their tax position.

The latest advice from the ATO on these issues can be accessed here.

Essentially, the ATO’s view is that if you are a non-resident of Australia and you are temporarily in Australia for some weeks or months because of COVID19, then you will not become an Australian resident for tax purposes provided that you usually live overseas and intend to return as soon as possible.

However, the ATO guidance acknowledges that tax residency issues can become more complicated if the non-resident ends up staying in Australia for a lengthy period or does not plan to return to their overseas country of residency. The ATO guidance also acknowledges that there will be unique situations with a range of potential tax outcomes. 

It is an important time to recognise that under Australian tax law a person is considered to be a resident of Australia in accordance with ordinary principles, essentially if they are dwelling permanently or for a considerable time in Australia or if they have their settled or usual abode here. 

We think a helpful summary of the state of the law of residency has been provided by Justice Derrington in Harding v Commissioner of Taxation [2018] FCA 837 in which he said: 

“Necessarily the question of where a person resides is a question of fact (and, perhaps, of degree per Dixon J in Miller at 103), the conclusion of which is reached by a consideration of all of the person’s circumstances.  Those circumstances will be directed to ascertaining whether a person has a physical presence or retains a “presence” in one location whilst at the same time maintaining an intention to reside there.  The consideration also involves identifying the person’s “habits and conduct within the period”, however, that will include a consideration of the events occurring prior to and subsequent to the relevant period as illuminating the relevance of the events in the relevant period.”

183 Day test of limited relevance

It is also important for Australian expats to be aware that the so called 183 Day test is not the main test, but a subsidiary test which is mostly aimed at determining whether a foreigner who might be in Australia for more than 183 days during the income tax year is a resident.

The 183 Day test only works in one direction. There is a misunderstanding in certain expatriate circles that a person cannot be a resident of Australia unless they have been in Australia for more than 183 Days. That is incorrect. The key test has always been whether the person is residing in Australia in accordance with ordinary concepts and a range of indicators have been considered by the Courts over 150 years to determine whether someone is residing in a country. 

Coronavirus Safety Net: Phase Two

With both the global and local situation changing rapidly as the coronavirus spreads, the government has already implemented new changes to support the Australian economy and the large number of businesses and individuals who are being impacted by the spread of COVID-19. On Sunday 22 March 2019 the government introduced measures that they have termed a financial safety net. These measures increase some of the provisions of the previous stimulus package and provide additional financial support for those facing loss of income.

These are unprecedented moves to support Australians and keep the economy going. Financial institutions have also made some major announcements to help ensure that people and businesses can get through this crisis.

Employers

Last week the government announced a refundable offset of 50% of the PAYGW remitted on your March-June activity statements. The offset was set to be a minimum of $2,000 (even if your PAYGW was lower than $4,000 for the March Activity Statement) and a maximum cap of $25,000. The government has now significantly increased this measure.

Eligible employers are those with an annual turnover of under $50 million. The payment will be made as a credit on the March and June activity statements. (If you are a monthly activity statement lodger then the April and May activity statements will also be included). 

The credit issued will now be calculated as 100% of the PAYGW (up to $50,000) for the March to June activity statements.

The minimum payment has now been increased to $10,000 and the maximum payment has been increased to $50,000.

An additional payment will be made in the July-October 2020 period. This payment will be equal to the payment made for the March to June 2020 periods. This means that the minimum total payment will be $20,000 and the maximum payment will be $100,000.

Non-for-profits who employ staff will now also be eligible for this payment. 

The reason for this payment is to help employers get through downturns and shutdowns without having to lay off staff. While it won’t be enough to help everyone, it is a chance to get more small businesses and their staff to get through this period of reduced income.

For more information on this see the Treasury’s fact sheet for cash flow assistance for businesses.

Coronavirus Supplement for JobSeekers

Jobseekers (formerly Newstart), both current and new, will now be eligible for the coronavirus supplement of $550 a fortnight for the next six months. See table 1 below for a list of eligible recipients.

Casuals and sole traders who are now earning less than $1,075 a fortnight will also be eligible for the full coronavirus supplement of $550 a fortnight.

To meet the criteria you need to ensure that you are enrolled for the jobseeker allowance and reporting your fortnightly income to Centrelink.

To make the coronavirus supplement easier to access the government is expanding the eligibility and qualification criteria from 27 April 2020, for a period of six months. Waiting periods and exclusions are also being waived for certain payments. This will ensure that sole traders meet their mutual obligation requirements simply by continuing to operate their business. It also ensures that people who are unable to work due to caring for someone who is infected, or due to a requirement to be isolated, will be eligible.

For more information see the Treasury fact sheet.

Unemployed, Casuals and Sole Traders: Access to Superannuation

Individuals who have been made redundant due to the coronavirus, as well as casuals or sole traders who have lost income due to coronavirus restrictions may be able to access taxfree lump sums from their superannuation. Individuals who are still working must have lost at least 20% of their income or working hours to be eligible. Eligible recipients can access up to $20,000 of their superannuation, entirely taxfree.

Access to taxfree superannuation lump sums is in two parts. The first lump sum of $10,000 must be withdrawn before 1 July 2020. A second $10,000 can be withdrawn after 1 July 2020. The exact timing of how long an eligible individual will have to apply for the second payment will depend on passing legislation. At this stage it is believed this will be accessible for around three months.

The lump sum withdrawals are taxfree and will not affect Centrelink or Veteran’s Affairs payments. Applications for withdrawal need to be made to the ATO through your myGov account. For more information see the Treasury fact sheet.

For more information see the Treasury fact sheet.

Households: Economic Stimulus Payments

Households who are not eligible for the coronavirus supplement may be eligible for a second $750 stimulus payment. This is in addition to the first $750 previously announced for welfare recipients. See table 1 below for list of eligible recipients for the first and second economic stimulus payments.

This $750 will be paid from July 13 to eligible individuals who receive the age pension, disability pension, carers allowance, family tax benefits, hold a DVA gold card or commonwealth senior card.

For more information see the Treasury fact sheet.

Pensioners

Deeming rates have been reduced. This means that pensioners will receive more income through their pension.

For more information see the Treasury retiree’s fact sheet.

Opportunities for Further Help

Centrelink is making changes to crisis payments in order to support people who are suffering financial hardship due to requirements to self-isolate.

Major banks have announced access to discounted loans for businesses and homeowners, as well as mortgage deferrals for property owners who find themselves struggling to meet their payments. The government has announced that they will provide 50% guarantees to the banks to help ensure that small businesses are more likely to be able to access the loans that are essential to get them through these times. 

Table 1: Overview of who gets the Economic Support Payments and the Coronavirus supplement.

Welfare Benefit $750 Economic Support Payment
(paid automatically from March 31st). Must be eligible between 12 March and 13 April 2020.
Coronavirus Supplement. $550 a fortnight for up to 6 months. $750 Second Economic Support Supplement.
(Paid automatically from 13 July). Must be eligible between 12 March and 13 April and NOT have received the coronavirus supplement).
Age Pension Yes No Yes*
Disability Support Pension Yes No Yes*
Carer Payment Yes No Yes*
Parenting Payment (Single or partnered) Yes Yes No
Wife Pension Yes No Yes*
Widow B Pension Yes No Yes*
ABSTUDY (Living allowance) Yes No Yes*
Austudy Yes No Yes*
Bereavement Allowance Yes No Yes*
Jobseeker (Newstart) Yes Yes No
Youth Allowance Yes No Yes*
Youth Allowance for jobseekers Yes Yes No
Partner Allowance Yes Yes No
Sickness Allowance Yes Yes No
Special Benefit Yes No Yes*
Widow Allowance Yes No Yes*
Family Tax Benefit Yes No Yes*
Double orphan Pension Yes No Yes*
Carer Allowance Yes No Yes*
Pensioner Concession Card holders Yes No Yes*
Commonwealth Seniors Health Card holders Yes No Yes*
Veteran Service Pensions Yes No Yes*
DVA PCC holders Yes No Yes*
Veteran Gold Card holders Yes No Yes*
Farm Household Allowance Yes Yes No
Special Benefit Yes Yes No

*If an individual is eligible for the coronavirus supplement due to being on an eligible payment for this then they will not get the second economic support supplement even if they are eligible for this due to a separate welfare criteria.

Stay Tuned For More

With the uncertainty that surrounds the spread of the coronavirus the government has made it very clear that this is not the end of the safety net. The situation will continue to be monitored and necessary additions will be announced until the crisis has passed.

The coronavirus stimulus package: Phase one

On 12 March 2020 the government announced the first phase of an economic stimulus package in response to the impact of the coronavirus (COVID-19) pandemic.

Welfare Recipients:

Eligible welfare recipients will receive a once off economic support payment of $750. This includes people receiving family tax benefits and anyone with a Veteran gold card. This will be paid after 31 March 2020 (pending legislation approval).

This is a non-taxable, non-assessable lump sum paid. To ensure recipients can spend the money, it will not be withheld to cover existing debts such as child support or Centrelink debts.

Employers:

Employers with less than $50 million turnover will receive between $2,000 and $25,000 to alleviate the cashflow burden of paying employees.

The benefit will be calculated at 50% of the PAYGW remitted in your March and June activity statements (as well as April and May if applicable). If you have less than $4,000 in PAYGW, then you will simply receive the minimum $2,000 payment after lodging your March Activity Statement. If your total PAYGW exceeds $50,000 over this period, then your benefit will be capped at the maximum payment of $25,000.

Instant Asset Write Off

To encourage businesses to invest in asset purchases, until 30 June 2020 all businesses with a turnover of up to $500 million will be able to instantly write off any assets costing up to $150,000. These write-offs will be claimed as tax deductions in your 2020 tax return.

For the 2021 tax year businesses with a turnover of up to $500 million will be able to immediately deduct 50% of the cost of new assets.

Eligible assets include any new asset that is installed to be used by your business and any second hand asset that you purchase and install to be used for the first time by your business. Normal deductibility rules apply, meaning that if the asset would otherwise have been depreciable, you can now claim an instant write off deduction in your tax return. If the asset is used for a mixture of business and personal use then only the business portion can be claimed as an immediate deduction.

For example:

Say you purchase a ute that is exempt from the car limit (because it qualifies as a commercial vehicle that is not designed for the principal purpose of carrying passengers), for $60,000. It is to be used exclusively for your business. In this situation you would be able to claim the entire $60,000 cost in your 2020 income tax return.

However, if you purchased a motor vehicle for $60,000 that is to be used exclusively for your business then you would still be limited by the car limits for depreciation. For the 2020 financial year, the maximum you can claim for a fuel-efficient vehicle is $57,581.00. If the car was used partially for work purposes and partially for business purposes then you would further be limited to only claiming the work related percentage.

For further details see the government’s fact sheet.

Further Assistance:

Additional support measures include:

  • Wage subsidies for employers hiring apprentices or trainees
  • Unspecified funds to support the regions and industries most impacted by the coronavirus (to be determined).
  • Fee waivers for significantly impacted industries such as the tourism industry.

If you are having trouble paying ATO debts you can contact them for debt deferrals, extensions and repayment arrangements. If you need help, please give us a call.

Stay Tuned:

The government is set to monitor the situation and deliberate on further decisions this week. This could include the next phase of a stimulus package.

Claiming foreign tax credits on capital gains made from overseas investments

Burton’s case [Burton v Commissioner of Taxation [2019] FCAFC 141] has set an interesting precedent for claiming foreign tax credits on capital gains made from the sale of overseas investments in the United States.

In simple terms, if you own a capital asset in the USA, and you are taxed in the US the capital gain, then you may not be able to claim all the US tax paid as credit in Australia.

The reason for this is because the ATO will only allow you to claim the foreign tax offset that relates to the portion of taxable discounted capital gain being declared in your Australian tax return. The Australia-US Double Taxation Agreement will not assist you in this regard.

Since Burton’s application to appeal the decision was denied on 14 February 2020, the position under the law has been clarified in a situation where an Australian taxpayer makes a capital gains on US real estate (or other assets which are considered effectively connected with the USA).

While some articles claim that this case means the ATO is clawing back the 50% discount on Australian residents with foreign held assets, this isn’t strictly true. It’s actually that not all of the US tax paid would be creditable here.

Example – Comparing the net tax effect on an Australian tax resident selling capital assets owned under different tax regimes. 

To understand the situation let’s consider the example of Jack, an Australian taxpayer who sells a long-term capital asset held in the US, NZ and Australia.

The US taxes capital gains in full, however they tax the capital gain at a different tax rate. NZ does not tax capital gains. Including NZ as a comparison makes it clear that the ruling from Burton does not claw back the discounted 50% capital gain.

For our purposes Jack is an Australian tax resident.

Let’s assume:

  • For ease of calculations Jack makes a capital gain of $1,000,000 on the sale of each of the following assets.
  • Jack’s first $1,000,000 capital gain is on an asset that he held in the US for more than 12 months. While the US taxes capital gains, it applies a concessional tax rate for assets held over 12 months. For ease of calculations we will assume the top concessional rate of 20% applies.
  • The second $1,000,000 gain is on an investment that was held in NZ for more than 12 months. NZ does not tax domestic capital gains.
  • Finally, Jack also sells $1,000,000 investment in Australia, which he has also held for over 12 months. Accordingly, Jack will only be taxed on 50% of the Australian capital gain. For ease of calculations we will assume the flat top marginal rate and Medicare levy applies, 47%.
  • Jack sells all 3 investments in the same financial year for a capital gain of AUD$1,000,000 each.
  • For ease of calculations Jack has no capital losses to apply and he is able to apply the 50% CGT discount in full when preparing his Australian tax return. 
    US owned Asset (AUD$) NZ owned Asset (AUD$) Australian owned Asset (AUD$)
  Capital Gain $1,000,000 $1,000,000 $1,000,000
a. Foreign Taxable gain after applying any discounts for assessing tax on capital gains $1,000,000 0
b. Foreign tax paid
US 20%
NZ NA on capital gains
$200,000 0
c. Australian Capital Gain $1,000,000 $1,000,000 $1,000,000
d. Portion of capital gain eligible for discount in Australian assessment $500,000 $500,000 $500,000
e.Net taxable Australian gain to be taxed (c – d)$500,000$500,000$500,000
f.Australian tax at $47% (including Medicare levy)$235,000$235,000$235,000
g.Net foreign tax paid that is eligible to be claimed as an offset against the Australian taxable portion of the capital gain US: b x 50%
All others: b
$100,0000
h.Australian net tax payable (f – g)$135,000$235,000$235,000
Total foreign & Australian tax (b + h)$335,000$235,000$235,000
Global Tax Paid 33.5%23.5%23.5%

As you can see from this example, Jack ends up paying more tax on the US asset. This is because the US taxes the full gain at a discounted rate. Australia then taxes half of the gain at the Australian tax rate and only allows the 50% portion of the foreign income tax credits to be applied.

Conclusion

The net impact of applying this precedent is that Australian taxpayers will end up paying up to 33.5% income tax on capital gains made on US investments that are held for more than 12 months. This is in contrast to the 23.5% income tax that they will pay on capital gains that are limited to only paying Australian income tax.

Family Trusts

On 17 February 2020 the Australian Financial Review ran an article titled ‘Fresh scrutiny of trust payouts to beneficiaries’. 

For clients who may have seen the article, we wanted to further explain the issues, so that clients with family trusts are not unnecessarily alarmed.

The essence of the article, is that if family trusts are used to distribute income (or capital gains) to children who are over 18 (or other low income beneficiaries), then the ATO may look to apply an anti-avoidance provision (known as Section 100A).

This can occur in situations where the beneficiary reimburses the trust or other beneficiaries (for example if a child reimburses a parent) in a way which suggests that they were never the intended beneficiary.

We have set out below an example as a discussion point.

Example

The ‘Magic Family Trust’ derives income of $200,000 in a given tax year.

Mr and Mrs Johnstone as the directors of the Trustee company – decide to distribute $130,000 to Mrs Johnstone and $70,000 to Earvin Johnstone Junior who is now 20 years of age. 

On the $70,000 distributed to him Earvin pays significantly less tax than Mrs Johnstone would have paid, because Earvin is still studying and does not earn an income.

On the trust distribution Earvin pays $15,697 of tax whereas Mrs Johnstone would have paid approximately $27,500 on that additional $70,000, had the distribution been made to her.

Discussions between Mrs Johnstone and Earvin lead to a transfer of funds from Earvin’s bank account to Mrs Johnstone on the basis that it is ‘family income’ and Mrs Johnstone will spend or invest those funds as she decides.

If this scenario was reviewed by the ATO, they may seek to apply Section 100A to the affairs of the Johnstone’s. Although there is effectively an exception for ‘ordinary family dealings’ it is not clear whether a court would agree that the arrangement above would be considered as such.

In our example it would be necessary to determine what Mrs Johnstone did with the money and if the funds were effectively used for Earvin’s benefit. For example the AFR article says that “in some cases, senior external lawyers and barristers have been engaged by the ATO to review spending on household costs, family holidays, cars and a range of other living expenses.’ 

However if the funds were clearly used for something which did not benefit Earvin then in our view Section 100A would be likely to apply.

Section 100A would have the effect of treating Earvin as never being entitled to the income. It means that the Magic Family Trust could potentially be assessed to pay tax at 47% on the $70,000 distributed to Earvin, excluding penalties (which would be applied).

That would increase the tax to $32,900 excluding penalties, compared to the $15,697 that Earvin would have originally paid.

ATO Ruling pending

The Australian Financial Review article also reports that the ATO is developing a public ruling which will discuss interpretational issues associated with Section 100A.

It is hoped that the public ruling will outline the ATO’s views on the ‘ordinary family dealing’ exception, so that taxpayers can have certainty about what type of arrangements will be acceptable to the ATO when it comes to distributing trust income.

Non-Residents Can No Longer Claim The CGT Main Residence Exemption

On December 5th 2019 the contentious law denying non-residents the Capital Gains Tax (CGT) main residence exemption was passed.

This means that the update we previously provided on this legislation is still in force. If you are no longer an Australian resident, or are permanently moving overseas, and you still own a property that was your main residence in Australia, then you need to know what this means.

Existing Non-Residents with Main Residence Property In Australia

Did you purchase your Australian main residence before 9 May 2017? If you did then you only have until 30 June 2020 to sell your property if you want to claim the CGT main residence exemption.

After this date non-residents will not be able to claim the exemption. Basically this means you will be assessed on the full capital gain.

On the other hand, if you plan to return to Australia in the future then you may still be able to claim the exemption. If this is the case then you can wait to sell your former main residence once you return to Australia. Once you are a tax resident again then you will be assessed as an Australian tax resident. This means the law will again allow you to claim whatever main residence concession you would ordinarily be entitled to. Given the rise in Australian property prices over the last decade, this change could see an Expat caught unaware, being exposed to capital gains tax of several hundred thousand dollars (if not more), depending on the situation.

For a more detailed look at what the law entails please refer to our “Update on CGT Main Residence Exemption for expats” post.

Seek Tax Advice

The change in law has the potential to significantly impact non-residents. While you can get a general overview from the information provided in our blog, it is important that your specific situation be assessed by a tax specialist. This is important because your individual situation will be dependant on many variables that can’t be adequately covered in a general blog. A personalised assessment will ensure that you understand your options and can make the best decision for your situation.