Tax implications for Australian residents working overseas

Australian residents are generally taxed on their worldwide income from all sources. Additionally, Australian residents for tax purposes are entitled to the tax-free threshold and are required to pay the Medicare Levy.

The tests that the ATO use to work out a taxpayer’s residency status for tax purposes are not the same as those used by other Australian agencies for other purposes such as immigration. You may be an Australian resident for the purposes of income tax, whether or not you are an Australian citizen and whether or not you are a permanent resident for immigration purposes.

If you remain an Australian resident for tax purposes while working overseas, then you are required to include in your assessable income:

1.    Foreign employment income (unless you are qualified for an exemption, eg. foreign aid workers)

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ATO targeting work-related deductions

You are liable to pay an income tax on your taxable income. To reduce your taxable income you can claim deductions for work-related expenses. Currently the ATO is focusing on the work-related expense claims in relation to:

1.    Using your computer, phone or other electronic devices to perform duties;

2.    Transporting bulky tools and equipment;

3.    Overnight travel.

If an employer requires you to use your computer, phone or other electronic devices for work purposes you may be able to claim a deduction for your expenses. To claim a deduction you must be able to show how you use the device for work. You are not allowed to claim a private usage portion. Additionally, you should keep a diary with the details of your work-related use.

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What happens to company losses after a change in ownership?

Normally, if you make a tax loss in an income year you can carry it forward and deduct it in future years against income for tax purposes. You can generally carry forward a capital loss and offset it against a capital gain in later years. Also, you can claim a deduction for bad debts that you have actually written-off if they were previously included in a business’s assessable income.

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Are you a non-resident for tax purposes?

Non-residents for tax purpose are required to pay income tax on Australia sourced income whether or not they are actually present in Australia. Interest income, unfranked dividends and royalties are not subject to income tax.

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Are you involved in a Dividend Washing Scheme?

The dividend imputation system eliminates double taxation when dividends are distributed to shareholders. The company pays a corporate tax on its profits. Later, a proportion of that tax is passed to the shareholders as a franking credit when the dividends are distributed. As a taxpayer you must include in your assessable income the dividends received as well as franking credits. When the tax payable is calculated on the grossed-up amount a resident taxpayer is generally entitled to a tax offset equal to the amount of franking credit included in his or her income.

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Difference between partnership & joint venture

If you are considering undertaking a project (eg. property development) you might be looking for a partner to join the assets, knowledge and expertise. What business structure is most suitable for you? Careful planning ensures that a proposed structure is tax efficient. You can set up a partnership or enter into a joint venture agreement. The tax treatment of a partnership differs from a joint venture.

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Is your will up to date for the holidays ?

As we start winding down and looking forward to the holidays over Christmas and the New Year, many of us make plans to visit friends and family interstate, or head overseas for a white Christmas. It’s a joyous time of year, one in which we are certainly not thinking about what would happen if our circumstances were to change dramatically.

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Trademarks are not intellectual property for tax purposes

If you consider purchasing a business you should bear in mind tax implications where the acquisition includes intangible assets (eg. intellectual property).

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Estate Planning & Testamentary Trusts

The property and assets belonging to a person who has died are called their deceased estate. This may include real estate, money in bank accounts, shares, and personal possessions.

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Due diligence costs may be deductible

When you are buying a business you may incur various initial expenses before the transaction is actually completed. These costs include legal fees to draft a contract or expenses to carry out a due diligence audit of the acquiring business and other incidental costs. The due diligence audit will assist you to gain a greater understanding about the business’s prospective earning capabilities, the position and competency of management, who the company primarily deals with in regards to customers and suppliers, what assets and liabilities they have, as well as their financial position.

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