After releasing most of the big changes in the last few weeks, including proposed reforms to superannuation and increases to the Medicare Levy, the Government didn’t have much left to announce in the 2013/14 Budget last night.
As far as expats are concerned the main changes will affect the superannuation scheme. The mooted changes, which have previously been announced are as follows:
Changes for Non-Resident Taxpayers on sale of Australian Property
With effect from 1 July 2016, where a non-resident sells a property located within Australia, a new (non-final) withholding tax regime will apply. This measure is designed to ensure that the appropriate amount of tax is recovered by the Australian Government on taxable capital gains that arise when such properties are sold.
These measures will apply to all Australian taxable property, other than:
where the property is owned and sold by an Australian resident (ie it applies to non-resident taxpayers only)
residential properties valued at less than $2.5 million.
Under this measure, the purchaser of the property will need to withhold 10% of the purchase price and forward it to the ATO as a form of withholding tax. As a result, the vendor will only receive 90% of the sale proceeds up-front. They will need to lodge a tax return if they want to receive any of the remaining 10%.
As an example, if a non-resident purchased a factory today for $1 million and sold it in 2 years time for $1.1 million, the non-resident would only receive 90% of the sale price (ie $990,000) with the remaining 10% (or $110,000) withheld by the purchaser and remitted to the ATO.
If, as a result of their Australian tax position, the non-resident was entitled to a refund of some of the $110,000 withheld, they would need to lodge a tax return with the ATO in order to receive that refund. Given that the $110,000 withheld exceeds the amount of the actual gain made on the sale of the property, the non-resident vendor is likely to lodge a tax return in Australia it will likely lead to have the excess tax returned to them.
This measure is likely to lead to an increased level of compliance by non-residents with the requirement to lodge income tax returns in Australia. Alternatively, non-residents may not be as eager to dispose of residential properties in the future, or will look to achieve an increased sale price to compensate for the amount of tax withheld.
Superannuation for Expats
A higher concessional contribution cap of $35,000 will apply to people aged 60 and over from 1 July 2013. The higher cap will then become available to people aged 50 and over from 1 July 2014. The cap will not be indexed in future years and it’s projected that the existing concessional cap will reach $35,000 in July 2018 when the caps will again apply to everyone regardless of age. While the higher cap is now less than the $50,000 promised to come into effect from 1 July 2014, the requirement to have less than $500,000 in total superannuation savings has been removed.
Excess contributions will be able to be withdrawn by individuals who will be able to have them taxed personally at their marginal tax rate. An interest amount will also apply to the excess amount, reflecting the delay in collection by the ATO.
The tax-free treatment of assets in supporting a superannuation income stream will be limited to the first $100,000 of earnings on those assets. Earnings above that will be taxed at 15%. It is expected that this threshold will be indexed to CPI and increase in $10,000 increments.
For those earning over $300,000, the Government will be imposing an additional tax of 15% on all your super contributions.