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🇦🇺 Australia

What should I know when moving to or investing in Australia? ​

Nozipho Tshabalal speaks with Investec's Elizabeth Fick and Jonathan Ortner, partner at Arnold Block and Leibner.

Elizabeth Fick, Investec’s joint head of tax and fiduciary, uses two words to describe the tax implications for a South African moving to or working in Australia: tricky and complicated.

Australia is a high tax jurisdiction, she warns, and if you don’t plan comprehensively before moving there, you could be jumping from the frying pan into the fire.

How will Australia’s domestic tax law affect me as an individual? ​

Jonathan Ortner, a partner at Arnold Bloch and Leibner, a legal and advisory firm in Australia, explains that two key concepts determine tax in Australia: source and residency.

Generally, an Australian tax resident is taxed on worldwide income. So, if you have a rental property in SA and Australia generating income, you will be taxed on both incomes. A non-resident, though, will only be taxed on Australian-sourced income. How you determine residency status is the tricky part as the tests for individuals can be highly subjective, says Jonathan.

There are four tests for residency:

  • Ordinary concepts or resides test
  • Domicile test
  • 183-day test
  • Commonwealth superannuation test.

If you satisfy the criteria of any of these, you will be considered a tax resident of Australia.

What happens if I’m a tax resident in both South Africa and Australia?​

Elizabeth says dual residency is quite common, but the two countries have a Dual Tax Agreement (DTA) to determine which of them has primary taxing rights. But just because the treaty provides relief doesn’t always mean you will get it, she warns. You must consider your personal circumstances to determine the relief you can claim.

When is a company considered an Australian tax resident? ​

This happens in one of two ways:

  • When the company is incorporated in Australia
  • If it’s not incorporated in Australia, but it carries out its business in Australia or its central management and control is there. If, for example, a director of a “foreign” company attends board meetings in Australia and company decisions are taken in Australia, the company will most likely be considered an Australian tax resident.

What about trusts? ​

Australia taxes foreign trusts aggressively, warns Elizabeth. Three things will trigger tax consequences for a trust in Australia:

  • Whether you’re a trustee or have any control over the structure
  • If you’ve contributed any money or services to the structure
  • If you receive distribution or income from the trust.

All it takes is one trustee to be resident in Australia to make the trust a resident trust estate, says Jonathan. Even If no trustee is resident in Australia, but central management and control is in Australia, the trust could become a resident trust estate.

What happens if I receive income from an SA trust? ​

From an SA perspective, income distribution to Australian resident beneficiaries is taxed in the trust at 36%, unlike for SA residents who are taxed in their hands at 18%. It is also subject to exchange control. Unless you’ve gone through formal Reserve Bank immigration, you’ll only be able to externalise your distributions through your foreign income allowance, which is capped at R10 million.

From an Australian point of view, trust corpus distributions (e.g., the original set-up sum) from a foreign trust are tax-free for Australian resident beneficiaries. For current-year trust income, you’re taxed at a marginal rate of up to 47%. For prior-year accumulated income, you’re also taxed at the marginal rate of up to 47%, but you might also incur penalties for deferring tax payment.

The DTA only kicks in if the entity that paid the tax in SA is the same as the one that paid in Australia. If there’s a mismatch of taxpayers – i.e. the trust paying tax in SA versus the individual paying tax in Australia – you could end up paying 36% tax in SA and 47% tax in Australia.

Is there any way I can mitigate taxes?​

An SA trust can make a distribution, gift, donation or loan to a family member in SA, who then distributes it to the family member in Australia as a gift.

In SA the distribution will attract a distribution tax or a 20% gift tax. Australia does not tax gifts or donations. But specific provisions allow the Australian Tax Office to tax a gift if it’s ultimately sourced from a trust.

Conclusions ​

  • SA-Australian tax law is very complex
  • If you plan properly before leaving for Australia you might be able to avoid some pitfalls.
  • Document all your advice and prepare as if you’re going to be audited.