Tax Residency Issues For Australians Including Cryptocurrency

Tax Residency.

This is a big one to make sure that we cover.

Some people it might be really simple. If you’re born in Australia, you’ve lived in Australia your whole life, you’re full Australian tax resident.

But, for others, it might be a little bit to consider here. And also, I know it comes up semi regularly, people want to consider should I be leaving Australia possibly to reduce my tax burden when it comes to my gains in crypto and what would that look like? What would be the implications?

So, we have your Australian tax resident and your non tax resident.

So, there’s rules that set out who’s an Australian tax resident, who’s not. These depend on whether you’re an individual, you’re a person, or if you’re an entity like a company or a trust.

Let’s just focus, if you’re a company or trust, simple sort of answer here is, if you’re a company that’s incorporated in Australia, you’re an Australian tax resident. That’s just how it is.

If you’re a trust and you’re a controller that’s here in Australia, you’re an Australian resident trust.

But when it comes to an individual. There’s various tests when it comes to residency and we know at the time of recording this the Australian government has announced that they’re going to modernise some of these rules. So we won’t go into detail at this time because they might change. But main ones here to look at is, resident here in Australia. At least indefinitely, most of the time you’re an Australian tax resident. If you’re overseas and living there indefinitely, most of the time you’re a non tax resident.

You might just be holidaying here in Australia. For example, just because you’re holidaying here in Australia for a short period, wouldn’t bring your cryptocurrency investments within the tax regime. Certainly not necessarily, unless there’s some really exceptional circumstances.

So, non tax residents of Australia don’t pay tax on your worldwide assets. You’d only pay tax on Australian sourced income, and you’d pay tax at the non tax resident rate, which sort of, to make it simply, just means you lose the tax free threshold and you’re quickly up to the higher tax rates, non tax residents.

When it comes to Australian tax residents, there’s actually two categories for an Australian tax resident. There’s a full tax resident, or a temporary tax resident.

So, full tax residents you get taxed on your worldwide income, you get taxed on your worldwide gains and losses from assets. So, you might, you can very well have a cryptocurrency on an overseas exchange if you’re an Australian tax resident, a full tax resident those gains and losses that are made over there taxable here in Australia.

You can sell those crypto, you can leave it in a foreign bank account, it’s the same scenario, it doesn’t matter where it is. Taxable here in Australia, as a general rule.

As opposed to if you’re a temporary Australian tax resident. So the thing here is the difference between a non resident and a temporary Australian tax resident is that you get the tax free threshold. But, and then, the difference between a temporary resident and a full Australian tax resident is you’re only taxed on your Australian income, Australian source income.

So, a temporary tax resident. Now, that is someone who’s over here on a temporary visa, so it might be someone who’s come over here for say a working holiday and they’re only intending to stay for a short while. But they’re staying sufficiently long enough the circumstances allow them to be Australian tax resident, they get the tax free threshold, but their assets, their worldwide assets, the gains and losses they make from them, so the gains and losses they make from cryptocurrency aren’t taxable here in Australia; it’s only their Australian sourced income that’d be taxable.

So, the only way that sort of crypto is generally taxed to them would be if they’re conducting a business of cryptocurrency here in Australia. Otherwise, if they were just in that investor/speculator category, that capital gains which I spoke about earlier in this course that they wouldn’t otherwise have to pay tax in Australia.

Some people who really should be looking into this and seeing if they can qualify, for what can otherwise be tax free gains from cryptocurrency for temporary tax residents are those special category, New Zealand residents. It’d be worthwhile looking into that. There’s certain criteria when it comes to a temporary tax resident. It’s more than just a temporary visa. I would definitely be recommending that you go and reach out to us and let us help you . Determine whether or not you need to be paying tax in Australia and your cryptocurrency gains because possibly, you might not.

But otherwise, for the majority of people know, given this course, we’re a full Australian tax resident. As I said, even though you might not have cryptocurrency overseas, worldwide income, worldwide gains and losses, taxable here in Australia, our tax rates.

Things which might influence these outcomes can be Double Tax Treaties.

Australia has Double Tax Treaties with a number of countries out there. Not all of them, some of them. And those rules can override the ordinary rules of each country.

What sort of, the most common one here is looking at residency. There might be Australia. For example, I might say I’m an Australian tax resident here and in another country, I don’t know, let’s say the UK for whatever reason, maybe I was traveling there for a little while, whatnot, different circumstances, they might also say I’m an Australian, I’m a UK tax resident under their ordinary rules.

Now we’ve got two countries claiming tax residency for myself those double tax treaties generally have a tiebreaker. Where they determine, okay, Drew is a only tax resident in one of those countries, and then from that have different rules around, okay, what is each country allowed to tax me on? So those double tax treaties would otherwise override the ordinary rules (yeah).

Important thing to bring up, haven’t got it on that slide deck, there is for our somewhat unlucky U.S. tax citizens. As we understand things, U.S. tax citizens are essentially, no matter what their circumstances, always a U.S. tax resident, unless they renounce their citizenship. So that can have some serious consequences for the U.S. tax (U.S.) citizens.

Really important that you seek advice out there. In terms of, okay, what reporting obligations do you have to the IRS. What taxes are owing, and then, what other things might be impacting you. For example, that it’s not necessarily ideal for a U.S. c to, to set up a family trust here in Australia, because the onus put on from the IRS and the U.S. tax system.

So, if you need some professional help there. Reach out to us. We’re not specialists in the U.S. tax system, but we do know some people who could be able to help you out and we’d be more happy to help point you in the right direction.

So I suppose, yeah, one of the key elements we have on there at this point is the exit tax. The ceasing Australian tax residency.

I suppose there’s also the entry point as well. So let’s focus on this exit part and focus on the entry part.

So, let’s say, hey, Drew, you’re an Australian tax resident. From next year, I’m planning to move to Europe from permanent basis, be there for 10 years and whatnot. Essentially, I’m going to lose my Australian tax residency.

Hey, I might have, I’ve got some Bitcoin, and next year I’ll still own that Bitcoin when I leave. As an individual, I’ve got a choice to be made in that tax return, relevant to the time I leave is whether or not I have a deemed disposal event at the time I cease my Australian tax residency, or I don’t optionally choose not to have that deemed event.

So, the deemed event would say any assets I own at the time I cease my tax residency. I can have a deemed disposal, which then means I have deemed proceeds equal to the value of the asset at that time. And if those proceeds are then more than the cost related to that asset, I’ve then got a capital gain to, to declare and pay tax on the Australian, in the Australian tax return.

Okay, so that would be, I’d otherwise be paying tax on it. On a paper gain here because I actually haven’t had a real gain, a real disposal event. The Australian system here is built to operate to go once you’ve left the Australian tax shore, we’re only going to tax you the gain you’ve made whilst an Australian tax resident.

So it’s there. It’s not automatic. I do have the option to say no, I don’t want to have this deemed in the event. But the thing here is, and the Australian rules would then say, okay, when you do eventually sell this asset, whether it be in a month time or 10 years time after then, you have an obligation now to come back, report that gain in your Australian tax return. And one of the big thing, two of the big things here, is that I could be a non tax resident at that time. Paying tax now at the non resident tax rates, so it might be high tax. And also I can lose the CGT discounts. I might have otherwise got 50% tax free, but being a non resident don’t have access to that, so a huge amount of extra tax possibly to pay there.

So there’s something there, a little bit of planning can be involved here, you don’t necessarily have to make that choice immediately when you leave, and the choice is made when you’re lodging that tax return for that year, so it might be a little bit of time to look at it, but it’s definitely something to be kept in mind for, because the exit tax could be quite substantial. Especially if you’re sitting on quite a large paper gain.

As I mentioned before, what about if you’re coming into Australia becoming an Australian tax resident the entry point actually becomes the point when the Australian tax system goes, okay, we’re going to start taxing you on gains you make, but we don’t want to tax you on gains you made up until now.

So on the date of arrival, your deemed to have acquired those assets at that time, whatever the market value was at that time, which is really important because it’s only the gains after then you get taxed on. The acquisition date, the time you arrive, also starts that period for the 12 months. So if you dispose of them within 12 months, you don’t get that discount, but if it’s after 12 months, you could get that discount.

So there’s a couple key important elements when it comes to residency.