Prior to COVID-19, there was a trend for Australian professionals to move overseas for work at some stage in their life. This trend is likely to continue after COVID-19 restrictions are eased.
The tax issues raised when someone stops being a resident of
This case study explores some of these issues.
Bessie and her family are Australian tax residents. Bessie is an engineer and she accepts a permanent position based in
Bessie moves to the US with her family. At this time, she stops being a tax resident of
Many years ago, Bessie had established a discretionary trust in
The trust now holds investments in shares listed on the
When Bessie leaves
It depends.
If the trust also stops being a resident trust for CGT purposes when Bessie moves to the US, a CGT event I2 will occur.
The consequences are that the trust will have to report a capital gain equal to the notional gain that it has made on any assets that are not taxable
A similar CGT event (CGT event I1) happens for CGT assets that Bessie holds in her name. However, CGT event I1 allows individuals to make an election.
The individual can elect to not account for capital gains tax on the CGT event I1, but effectively treat their CGT assets as TAP. The practical effect is that the individual will have to report any capital gain or loss when those shares are sold, rather than at the time of becoming a non-resident.
No equivalent election is available for a trust when a CGT event I2 is triggered.
In Bessie's circumstances, this would result in a significant capital gain for the trust if it stops being a resident trust for CGT purposes.
Under Australian domestic tax law, a trust is a resident for CGT purposes if:
- the trustee is a resident of
Australia ; or -
the central management and control of the trust is in
Australia .
In this case, as the trustee of the trust is a company incorporated in
However, as there is a double tax agreement (DTA) between the US and
- whether the trust is a resident of the US (under its domestic laws); and
- if so, whether the DTA will deem the trust to be a resident of the US.
The effect of the DTA with the US is generally that a company will be a resident of the country in which it is incorporated. This means that for Bessie, the trust will remain a resident trust for CGT purposes in
What if Bessie moved to another country?
Many of
For example, if Bessie moves to the
Both the
If Bessie and her partner relocated permanently to the
However, as the
According to the MLI, until its residency position is decided, the trust would:
- not be able to take advantage of any exemptions or relief available under the DTA
-
be taxed as a resident in both the
UK andAustralia .
For the ATO and HMRC to consider its residency position, the trust would generally need to apply to the ATO or HMRC requesting a determination of its residency.
In the recent case of
Trustees will need to be aware of this when considering distributions for the 2020 income year. Please see our alert on this issue here.
The increased global mobility of professionals gives rise to a variety of complex tax issues.
In some cases, there are significant tax risks that can be mitigated through careful planning. That planning generally must be done before moving to another country, or as soon as the issue has been identified
© Cooper Grace Ward Lawyers
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.
Mr
Level 21
QLD
4000
Tel: 73231 2444
Fax: 73231 3221
E-mail: communication@cgw.com.au
URL: www.cgw.com.au
© Mondaq Ltd, 2020 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source