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Returning Home – How Deemed Acquisitions Impact Australian Expats

Deemed Acquisitions for Australian Expats - Ally Wealth Management

As an Australian expat Financial Planning firm, we understand that your journey as an expat is both thrilling and challenging. This post is for you, the brave Australian who dared to venture overseas and is now considering returning home.

We’re here to walk you through one of the important yet often overlooked elements of the repatriation process – Deemed Acquisitions. Getting this wrong, or simply ignoring the implications can be an expensive mistake, so we’re here to ensure that that you’re empowered and informed, and that that does not happen.

Understanding Deemed Acquisitions

The first thing you may be asking is, “What are Deemed Acquisitions?” It’s a term that gets thrown around a lot in financial planning circles, but what does it really mean for you? In essence, Deemed Acquisitions is a principle in Australian tax law that could significantly affect you when you decide to return home.

Under this principle, if you owned assets overseas, they are assumed, or ‘deemed’, to have been sold and re-purchased at their market value at the time you become an Australian resident again for tax purposes. You might be thinking, “I didn’t sell anything, so why does it matter?”

Here’s the kicker – the entry to Australia effectively forms your cost base as an Australian tax resident. There could also be tax implications in the country that you’re relocating from, so it’s vital to review the Double Tax Agreements between your country of residence and Australia.

Impact of Deemed Acquisitions on Australian Expats

So, what’s the big deal? Picture this. You’ve spent several years overseas, diligently investing in shares, property, or other assets, only to be hit with an unexpected CGT bill upon your return, or to start paying tax on all dividends received and capital gains that you realise from the point of return to Australia. That’s the power of Deemed Acquisitions.

While it might feel like this law is all doom and gloom, remember, it’s not always the case. Certain assets, including your main residence or assets acquired before becoming a non-resident, can be exempt. It’s crucial to understand these details to prevent any unwelcome tax surprises.

This highlights why it’s important to plan early, as you can consider such strategies as; changing the ownership structure of your investments before you repatriate, shifting assets into superannuation being mindful of the super contribution limits, considering offshore or onshore trusts, and even simply liquidating investments before you return to Australia where funds may be better utilise to pay down non-deductible loans for example.

Case Studies

We understand that these concepts can seem a little abstract. To help, we’ve gathered three case studies that offer a clearer picture of how Deemed Acquisitions may affect Australian expats returning from specific countries: Singapore, Hong Kong, and Dubai.

Case Study 1: John in Singapore

Take John, an Australian expat who had been living and working in Singapore for a decade. He had diligently invested in a diverse portfolio of shares on various stock exchanges across the globe, including some exchange traded funds. On deciding to move back to Australia, the market value of his portfolio was $500,000 AUD, a substantial increase from the $200,000 AUD he initially invested.

Under the Deemed Acquisitions rule, his portfolio was considered as being sold and re-purchased at the current market value of $500,000 AUD. Given that Singapore does not have a capital gains tax, or tax on most dividends, this $500,000 AUD becomes his cost base and all capital gains and dividends would be taxed in Australia at his marginal rates. Therefore, it would be sensible for John to plan well in advance of his return to Australia to consider any ownership changes or super contributions going forward.

Case Study 2: Lucy in Hong Kong

Then, there’s Lucy, who had been working in Hong Kong and had bought a flat there. When Lucy decided to return home, her apartment, which was initially bought for $600,000 AUD, was worth $800,000 AUD.

Given that this is Taxable Australian Property (TAP), there is very little change for Lucy, other than the rental income she was generating will no longer be taxed at non-resident rates, and she may have to declare a capital gain as a non-resident in the event that she sells the property in future.

Case Study 3: Peter in Dubai

Our last case study involves Peter from Dubai. Peter had built a successful start-up while living in Dubai. Upon deciding to return to Australia, the value of his company shares stood at $1 million AUD. Under the Deemed Acquisitions rules, Peter will be deemed to have acquired the shares at a valuation, or cost base, of $1 million AUD when he returns to Australia, and future capital gains and dividends would be taxable in Australia.

In Peter’s case, similar to John in Singapore, he would want to seek advice from his Australian expat Financial Planner to ensure that the ownership structure of his private company is suitable given that he will become an Australian resident again. He could consider such options as insurance-linked investments, foreign or domestic companies, foreign or domestic trusts, or even superannuation.

Navigating Deemed Acquisitions: Practical Advice for Australian Expats

As these case studies show, understanding and planning for Deemed Acquisitions can make a significant difference in your financial planning. Here are some actionable tips:

  • Get informed: Start by understanding your tax obligations. Each expat’s situation is unique, and therefore, their tax obligations will differ. Familiarise yourself with the Deemed Acquisitions rule and consider how it might apply to you.
  • Plan ahead: Before moving back home, consider whether any changes in holding structures would be suitable for you while you are still a non-resident for tax purposes. It’s always best to seek advice well in advance of your return home to ensure that there are no nasty surprises lurking.
  • Seek professional advice: With such a complex topic, it can be helpful to speak with a tax professional or financial adviser. They can help tailor a strategy that’s right for your individual circumstances.

Conclusion

In conclusion, the journey home for an Australian expat can be as complex as the journey abroad, especially when dealing with potential tax implications such as Deemed Acquisitions. But with a little planning and the right advice, you can navigate these financial waters with ease.

Remember, the road to financial clarity starts with understanding. We’re here to guide you every step of the way, ensuring your journey home is as smooth as possible. We’ve got your back.

Found this information helpful? Share it with your fellow expats. Remember, knowledge is power, especially when dealing with taxes. Leave your questions or comments below, and we’ll get back to you with the answers you need. Together, we can make returning home a breeze.

Ally Wealth Management is the trusted ally in finance for Australians at home and across the globe. As both Australian expats and residents, the founders of Ally have a unique understanding of the common personal financial challenges faced.

Book your complimentary appointment with our team at Ally Wealth Management to discuss how we can help you to achieve your financial goals.

Ally Wealth Management Pty Ltd is a Corporate Authorised Representative of Sentry Advice Pty Ltd ABN 77 103 642 888. Sentry Advice holds an Australian Financial Services Licence (AFSL) No. 227 748.

General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.

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