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“What are some year-end tax planning tips to consider before 30 June 2020?”
1. Defer Australian Sourced Income and Accelerate Deductions
This is always the fundamental principal of tax planning as you approach 30 June each year, even as an expatriate. As an Australian non-resident for tax purposes, you are only taxed on your Australian sourced income and assets, which is for most of us, Australian property and any shares which we acquired in Australia, and were not “deemed” sold when we moved. When applying this principal to your property, generally you cannot defer rent, but any expenses which you may have to pay, ensure to pay them before 30 June, including for repairs and maintenance work, and other expenses like land tax and depreciation reports. Australian-based Income Protection Insurance premiums are also deductible against your Australian rental property.
If you have a positively geared rental property back in Australia, you are likely paying non-resident tax at 32.5%+ with no tax-free threshold on your net income, which is unpleasant. If you are under 65 (or 75 and working), you can consider making a deductible superannuation contribution of up to A$25,000 before 30 June, which can be claimed as a deduction against your rental income in the same year, saving you 32.5% tax at the individual level. This does however get taxed at 15% within your superannuation fund on the way in, and 15% annually on its earnings up to retirement, however there is a net saving of 17.5%, together with the fact that you are putting some funds towards your retirement. Remember to ensure this is contributed well before 30 June to ensure the fund receives it in time, and also once the funds go in, they are effectively locked in there until you are 60 and retired, or 65 years of age. From 1 July 2018, you are able to carry forward any unused “concessional” contributions to the 2020 financial year, meaning that you could contribute up to $50,000 this year (to 30 June 2020) if you did not make any contributions last year. Superannuation can be complicated so make sure you reach out to a professional like myself to discuss your contributions before you make them.
3. Depreciation Reports
If you have a rental property back home and do not have a depreciation report, it is worth considering this if the property was constructed after 15 September 1987 or had substantial renovations after this time. Depreciation is a deduction for the reduction in value of the construction (not the land!) of the property, together with the plant and equipment, and furniture and fittings. We did recently have a rule change which meant that investors cannot claim deductions for second hand plant and equipment already installed within a newly acquired property however the capital works deduction on the value of the construction cost may still be claimed and lasts for 40 years. I recommend reaching out to a quantity surveyor such as BMT or Tax Shield to discuss your specific property and determine whether it is worthwhile commissioning a report. Furthermore, the cost of the actual report is deductible so if you pay for it before 30 June, you can claim a deduction. You can also amend some of your old returns to do a back claim after the report is produced, which could potentially pay for the cost of the report in refunds.
4. Share Trading
For those expats who may have been holding shares when they moved away from Australia and never elected a “deemed sale” for tax purposes in that particular year, these shares will still be taxable in Australia on sale. Year-end presents an opportunity to sell (and buy back) any shares at a loss to crystallise the Australian capital loss (and potential gains against the loss as well). If you buy them back as a non-resident, you then pay no further tax on the gains as a Singapore tax resident, until you move back to Australia again.
5. Capital Gains Tax Changes
The Capital Gains Tax Principal Place of Residence Exemption is removed after 30 June 2020 for “Foreign Tax Residents”. This means that if you sell your former family home as a non-resident after this date, you will be taxed on it, with no principal place of residence exemption allowed. Important action is to either hold onto it until you return back to Australia as a tax resident again or sell it in the future, but be aware that you will have no tax concessions allowable under this provision. Some exemptions do apply for divorcing couples and other major life events.
6. Land Tax
For those expats who may have recently arrived in Singapore, it is important to ensure that your property back in Australia is no longer listed as your principal place of residence for land tax purposes, as you will be liable for land tax on this now going forward.
7. Trust Distribution Minutes
For those few that may still have an Australian discretionary trust active, ensure that you prepare your trust distribution minutes by 30 June.
These top tips for tax-planning should give a good initial overview of the important considerations and areas to focus on for year-end tax planning. Should you wish to learn more on this topic, please do contact Tristan directly on the email given below and we would also recommend viewing a recent webinar Tristan hosted on this topic and the recording is available here
Select Investors Australia is an Australian private client tax practice based in Singapore, specialising in tax advisory and compliance obligations for Australian expatriates, foreign investors and intended migrants to Australia.
** The information provided in this article is intended for information only and should not be relied upon as a basis for unilateral tax and financial planning action. The rules and bases of taxation are subject to change and the tax principles and rules discussed here have further complexities which need to be taken into account. Please contact us to discuss your specific circumstances on firstname.lastname@example.org