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Traviz

Australian Taxation on retirees?

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Traviz

Posted Today, 02:08 PM

Forex, on 15 September 2011 - 02:32 PM, said:

I just discovered that with Australian tax if you reside overseas longer than 6 months in the year, you are obliged to pay a 'non-residence' tax. That is, you actually pay MORE for living out of the country - work that one out!

Do any other Aussies living in PI know about this? (I probably won't get an answer to this question? )

 

I've just noticed it recently too and it's a worry. If I understand what's written on the ATO website correctly, I will not have to pay the medicare levy if classed as a non-resident for tax purposes, BUT I will lose the first $6000.00 tax free concession AND my tax will jump from 15 cents in the dollar to 29 cents in the dollar!!

I can only hope that self funded retirees are treated differently but I can't see anything to that effect.

I asked my accountant in Australia about this and she could not give a clear reply either.

This topic deserves it's own thread as it's Australian specific so I will repost this in the hope that someone with authoritative knowledge will give some helpful advice or perhaps PM's.

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KennyF

No one seems to know much about the combination of "old age pension" and "live over seas"

 

I do know you must reside in Oz for two years before or two years after claiming the pension.

I do know that you can holiday overseas but the pension is stopped while you are away.

I'm fairly certain you could leave 2 or 3 months at a time as long as you maintained your residency status here in Oz.

 

I'm quite sure (but from an unconfirmed source) that Australia has more than double the pension money coming in to the country as there is going out.

 

KonGC

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abw

Well, to find out if you're an Australian for tax purposes it's a little more complicated than simply being 6 months out of the country. For example the ATO also considers your financial links in Australia (income, bank accounts, property).

 

Try this tool first: Determination of Residency

 

If you don't get a clear answer, then try Residency Tests and Tools list.

 

As for tax on non residence, that's also a bit more complicated. For example, if you are just talking about tax on interest, then it's a flat 10%. Shares are also taxed differently.

 

Andrew

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Forex

Hi Traviz

 

Yes, its a fair slug for me, about 10,000 pesos a month difference! More if the AUD keeps dropping!

 

Its a very 'grey' area of tax and a subject for which there appears to be no real authority. Even the ATO website is scarce on information and quite ambiguous.

 

From what I've researched, there is no prejudice between self-funded retirees and anyone else. I understand it was put in place to stop migrants from returning home to their country after qualifying for an age pension in Oz. No prize for guessing which country was the main offender (hint: they're in danger of defaulting on their European debt)!

 

There seems to be a number of tests like; having a permanent address in Australia; receiving an income (superannuation pension or otherwise) from an Australian source; and the duration you intend living (or holidaying) overseas. All very subjective and open to interpretation.

 

I've been advised that I should return to Australia at least once a year, lodge a tax return stating I'm still a permanent resident and keep an address in Australia for tax purposes.

 

I've also been told (unofficially) that this tax rule is currently the subject of a legal challenge and that it may be rescinded in the near future. I can't confirm that though.

 

To me it seems totally unfair and makes no sense. Considering I will be no longer using Australian tax-funded infrastructure while living overseas and worked and paid taxes for 40 years, I should be entitled to live anywhere I wish in retirement without being penalised.

 

Maybe other members here will have more information; although I fear most would not want to share too much information in case they're in breach of this absurd (and discriminatory) tax rule, knowingly or otherwise.

 

Cheers

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KennyF

 

There seems to be a number of tests like; having a permanent address in Australia; receiving an income (superannuation pension or otherwise) from an Australian source; and the duration you intend living (or holidaying) overseas. All very subjective and open to interpretation. I've been advised that I should return to Australia at least once a year, lodge a tax return stating I'm still a permanent resident and keep an address in Australia for tax purposes.

 

 

>>> Its a very 'grey' area of tax and a subject for which there appears to be no real authority. Even the ATO website is scarce on information and quite ambiguous.

 

According to ATO directives to staff this is a non negotiable rule. Two years before or two years after as a permanent resident (resident for tax purposes is not accepted),

 

>>> I've also been told (unofficially) that this tax rule is currently the subject of a legal challenge and that it may be rescinded in the near future. I can't confirm that though.

 

That challenge has been supposedly going on for a few years.

 

>>> I understand it was put in place to stop migrants from returning home to their country after qualifying for an age pension in Oz.

 

Yes, that seems to be the reason, but there is more pension money coming into Oz that there is going out, but that's never mentioned.

And anyway, should that law apply to me, who worked in Oz from 14 year old to 59 year old and only left for the 6 years leading up to 65.

According to the ATO it does.

 

The bottom line is, Australia can not afford to pay a pension to baby boomers because there are just too many of us, so they use any tactic to cut costs.

 

Don't blame the ATO, they're just workers, servants of the government.

 

And the silly thing is, being a resident now because the ATO demand it, I was able to get a $AU12,000 eye operation free in a Queensland hospital.

 

KonGC

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Forex

I’m sorry Kenny I may not have explained myself properly and I think we may be talking at cross purposes.

 

I’m not talking about the age pension and living overseas, although living permanently outside Australia you will still be required to pay ‘non-residence’ tax, if you don’t pass the tests I mentioned in my previous post.

 

I will be a self-funded retiree by early next year and have contributed to a superannuation fund for many years. I plan to receive a monthly pension from the savings I've paid to it over the years..

 

If I choose to retire in Australia I will receive the normal tax concessions for self-funded retirees. However, if I choose to live in PI I may lose those tax concessions, and I will also have to pay additional tax (as per Traviz’s post) for being declared a non-resident.

 

Your arguments about Australians receiving an age pension and living overseas are valid.

 

My argument is that if you have been saving all your working life for your own self-funded retirement, you shouldn’t be financially disadvantaged through an additional tax just because you choose to live overseas.

 

Cheers

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Traviz

 

To me it seems totally unfair and makes no sense. Considering I will be no longer using Australian tax-funded infrastructure while living overseas and worked and paid taxes for 40 years, I should be entitled to live anywhere I wish in retirement without being penalised.

 

Maybe other members here will have more information; although I fear most would not want to share too much information in case they're in breach of this absurd (and discriminatory) tax rule, knowingly or otherwise.

 

Cheers

 

My situation and feelings and exactly what I said to my accountant.

 

Seems there are plenty of us here in the same boat, so hopefully more information will surface that will help us effectively in understanding exactly where we stand and respond to what appears to be nothing more than a greedy assault on Australian retirees.

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Traviz

As for tax on non residence, that's also a bit more complicated. For example, if you are just talking about tax on interest, then it's a flat 10%. Shares are also taxed differently.

 

Andrew

 

 

That's interesting Andrew.

Can you share a link or something about the 10% tax on interest?

I'm sure a lot here will be very interested in that information.

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Traviz

Thanks Andrew.

 

That's an option I will have to explore and weigh up.. Ceasing to be an Australian resident for tax purposes.

The 10% ~ 30% tax mentioned sounds good if 10% is all you pay, but what do you lose?

 

I'm not sure I want to lose medicare (may need an operation eventually)

Also, the loss of the first $6,000.00 tax free threshold and seniors/low income concessions will need to be factored in too.

 

Lastly, will the status as non resident for taxation affect my eligibility for the age pension when I turn 65?

 

All questions we need advice and answers to.

One thing I did find on the ATO site is a calculator which will tell you after answering a few questions whether they consider you to be a resident for tax purposes or not.

 

I found it helpful as it said I am.. so I forwarded the results to my accountant to see what she advises now.

 

Here's the calculator if anyone wants to use it:

 

 

http://calculators.ato.gov.au/scripts/axos/axos.asp?CONTEXT=&KBS=residency_leaving.XR4

Edited by Traviz

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abw

Thanks Andrew.

 

That's an option I will have to explore and weigh up.. Ceasing to be an Australian resident for tax purposes.

The 10% ~ 30% tax mentioned sounds good if 10% is all you pay, but what do you lose?

 

I'm not sure I want to lose medicare (may need an operation eventually)

Also, the loss of the first $6,000.00 tax free threshold and seniors/low income concessions will need to be factored in too.

 

Lastly, will the status as non resident for taxation affect my eligibility for the age pension when I turn 65?

 

All questions we need advice and answers to.

 

One thing I did find on the ATO site is a calculator which will tell you after answering a few questions whether they consider you to be a resident for tax purposes or not.

 

I found it helpful as it said I am.. so I forwarded the results to my accountant to see what she advises now.

 

Here's the calculator if anyone wants to use it:

 

 

http://calculators.a...ncy_leaving.XR4

 

Being a non-resident for tax purposes and a non-resident according to Medicare are two different things. Basically, if you live outside Australia continually for more than 5 years, you lose your Medicare eligibility. To regain your Medicare privileges, you need to prove to them you intend to stay in Australia (purchase property, sign a rental agreement, proof of employment etc.).

 

Regarding eligibility for the pension; if you live outside Australia for more than 2 years (in a country which has no reciprocal social security agreement with Aus, such as the Philippines), you have to go back to live in Australia and stay for 2 years to be able take that pension overseas indefinitely. There are some exceptions to this rule, depending on your social and economic ties to Australia.

 

Andrew

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KennyF

Basically, if you live outside Australia continually for more than 5 years, you lose your Medicare eligibility. To regain your Medicare privileges, you need to prove to them you intend to stay in Australia (purchase property, sign a rental agreement, proof of employment etc.).

 

Regarding eligibility for the pension; if you live outside Australia for more than 2 years (in a country which has no reciprocal social security agreement with Aus, such as the Philippines), you have to go back to live in Australia and stay for 2 years to be able take that pension overseas indefinitely. There are some exceptions to this rule, depending on your social and economic ties to Australia.

 

Andrew

 

Unless it has changed recently, it's 3 years absence to lose Medicare.

But they have no way of knowing you were gone at the moment if you don't mention it.

 

And to remain a resident while absent for more than 2 years you need to keep paying tax, maintain ties with family, keep paying rent and electricity bills and so forth.

In other words, you should not appear to have pissed off full time but have only temporarily been away and always meant to return to good old OZ.

 

Regarding reciprocal social security agreements.

Only good if you are a resident of another country.

You can't just move to Portugal, for instance, as a tourist and claim Australian OAP.

 

I pointed out to Centerlink that while I had been out of the country for 5 years, I did have about 40 years of working in Oz and of course am a Australia citizen.

The pointed out to me that there was NO LEEWAY on that particular act.

 

I wonder when that particular act came into force?

Anyone good at finding out about things like that?

 

For what it's worth, Australia has more than double pension money coming in to Oz than is going out.

 

KonGC

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abw

 

Unless it has changed recently, it's 3 years absence to lose Medicare.

But they have no way of knowing you were gone at the moment if you don't mention it.

 

....

KonGC

 

I'm pretty sure it's 5 years. See this link.

 

I think you'll find all Australian government departments share information with each other, including immigration. So, for example, you've been out of the country longer than 5 years, and return, Mecicare will most likely be flagged or notified.

 

Andrew

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KennyF

 

I'm pretty sure it's 5 years. See this link.

 

I think you'll find all Australian government departments share information with each other, including immigration. So, for example, you've been out of the country longer than 5 years, and return, Mecicare will most likely be flagged or notified.

 

Andrew

 

Yes, I see it's 5 years now, but when I returned in 2004 and asked to replace my lost card I was told 3 years.

Never mind, it's still a liberty on the governments behalf.You're either Australian or you're not.

 

I just returned again in May 2011 after 6 years absence and applied for and was issued with a replacement card.

 

KonGC

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Forex

This is very good information and confirms some of my thoughts. Thanks guys!

 

I did the 'Determination of Residency Status' on the ATO website and based on my responses it determined that I was an Australian resident for tax purposes, which suits me. I answered honestly stating that:

  • I am not emigrating to live permanently in another country; and
  • I would not spend the majority of my time overseas based in any one place (I do plan to travel around PI).

This is true at this point in time. How do I know now if I'll be residing permanently overseas in 2 years time? I may hate it in PI and return home after 6 months. And how are they going to check to see if I spend the majority of my time in any one place while living (holidaying) in PI? They are hardly going to ask Interpol to check on me!

 

Its as I said in a previous post, if I return to Oz at least once a year, file tax return stating I am an Australian resident and rent out my Australian property, therefore maintaining an Oz address, I think I should be OK ...... well I hope I'll be OK.

 

BTW there is a series of Tax forums being conducted in Australia over the coming weeks as a starting point for reform. It would be interesting to see residency tax is on the agenda as I believe there has been a lot of pressure to change this ridiculous rule.

 

Cheers

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