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Taxation on Money Transfers for New PR's

Taxation on Money Transfers for New PR's

Old Feb 16th 2005, 12:40 am
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Question Taxation on Money Transfers for New PR's

Hi

I have searched the forums and got some answers but....
If we have 100,000 GBP in the UK and convert say 20,000 GBP into $AUD and transfer it to our new bank account when we arrive in Australia as PRs, then transferred another 20,000 a month later then another 20,000 say 3 months later etc etc until the full 100,000 was transferred, when does the lump sum transferred be classed as income or a capital gain?

I understand you may get taxed on the currency conversion difference from when you first entered Australia to when you actually transfer the money, but what about the lump sum? Can you keep pushing money from your UK account to your Oz account forever only paying tax on the exchange rate differences (although i heard you can waiver the gain/loss on this with the ATO)

Any thoughts would be appreciated as we are flying out next week

Cheers

Tincx
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Old Feb 16th 2005, 9:55 am
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Default Re: Taxation on Money Transfers for New PR's

I am looking through the ATO Website for an answer to this but still cant find it

Has anyone transferred money from UK to Oz throughout the first year of settling without any tax issues?

Cheers

Tincx
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Old Feb 16th 2005, 9:56 am
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Default Re: Taxation on Money Transfers for New PR's

Originally Posted by Tincx
Hi

I have searched the forums and got some answers but....
If we have 100,000 GBP in the UK and convert say 20,000 GBP into $AUD and transfer it to our new bank account when we arrive in Australia as PRs, then transferred another 20,000 a month later then another 20,000 say 3 months later etc etc until the full 100,000 was transferred, when does the lump sum transferred be classed as income or a capital gain?

I understand you may get taxed on the currency conversion difference from when you first entered Australia to when you actually transfer the money, but what about the lump sum? Can you keep pushing money from your UK account to your Oz account forever only paying tax on the exchange rate differences (although i heard you can waiver the gain/loss on this with the ATO)
This kind of detailed tax question is best answered by a professional adviser - there are too many ifs and buts for a short answer to be of any use.

Jeremy
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Old Feb 16th 2005, 10:05 am
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Default Re: Taxation on Money Transfers for New PR's

Originally Posted by JAJ
This kind of detailed tax question is best answered by a professional adviser - there are too many ifs and buts for a short answer to be of any use.

Jeremy
Thanks Jeremy

Thought you might say that

Im sure not everybody on here transferred their money over in one go, i will seek advice like you have suggested.

Cheers

Tincx
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Old Feb 16th 2005, 10:07 am
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Question Re: Taxation on Money Transfers for New PR's

Originally Posted by Tincx
Hi

I have searched the forums and got some answers but....
If we have 100,000 GBP in the UK and convert say 20,000 GBP into $AUD and transfer it to our new bank account when we arrive in Australia as PRs, then transferred another 20,000 a month later then another 20,000 say 3 months later etc etc until the full 100,000 was transferred, when does the lump sum transferred be classed as income or a capital gain?

I understand you may get taxed on the currency conversion difference from when you first entered Australia to when you actually transfer the money, but what about the lump sum? Can you keep pushing money from your UK account to your Oz account forever only paying tax on the exchange rate differences (although i heard you can waiver the gain/loss on this with the ATO)

Any thoughts would be appreciated as we are flying out next week

Cheers

Tincx
I thought that you had six months to get your finances in order between UK and Aus starting from when you commence residency.

Last edited by gajjitt; Feb 16th 2005 at 10:21 am.
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Old Feb 16th 2005, 10:20 am
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Default Re: Taxation on Money Transfers for New PR's

Where did you read that?

Best regards.



Originally Posted by gajjitt
I thought that you had six months to get your finances in order between UK and Aus starting from when you commence residency.
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Old Feb 16th 2005, 10:21 am
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Default Re: Taxation on Money Transfers for New PR's

Originally Posted by gajjitt
I thought that you had six months to get your finances in order between UK and Aus starting from when you commence residency.
Hi gajjitt

I thought that too, but apparently that only applies to Pension Transfers.

Tincx
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Old Feb 16th 2005, 10:21 am
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Default Re: Taxation on Money Transfers for New PR's

Originally Posted by gajjitt
I thought that you had six months to get your finances in order between UK and Aus starting from when you commence residency.
The 6 months applies only to pensions.

Regards
Alistair
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Old Feb 16th 2005, 10:43 am
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Default Re: Taxation on Money Transfers for New PR's

Originally Posted by Tincx
Hi

I have searched the forums and got some answers but....
If we have 100,000 GBP in the UK and convert say 20,000 GBP into $AUD and transfer it to our new bank account when we arrive in Australia as PRs, then transferred another 20,000 a month later then another 20,000 say 3 months later etc etc until the full 100,000 was transferred, when does the lump sum transferred be classed as income or a capital gain?

I understand you may get taxed on the currency conversion difference from when you first entered Australia to when you actually transfer the money, but what about the lump sum? Can you keep pushing money from your UK account to your Oz account forever only paying tax on the exchange rate differences (although i heard you can waiver the gain/loss on this with the ATO)

Any thoughts would be appreciated as we are flying out next week

Cheers

Tincx
Hello,

As others have said, you may want to get some advice.

The basic rule is that the cash you have in the UK when you arrive (to take up residence permanently) is notionally converted into $s. If you make a gain on this when you do the actual conversion, you can be taxed on the gain.

So if your 1st £20k is converted before or on the day of arrival then there is no gain and no tax to pay. If you convert money 3 months later and get a gain then you pay tax on the gain. If you make a loss, you can offset this against a gain. (I'm not sure on this one but you may be able to offset the loss against income under the Foreign Currency Gains Tax rules and a capital gain under CGT rules - which of these applied depends on whether you started your UK account after or before the 1 July 2003, respectively.)

Any interest you make on your UK money can be taxed as income by the ATO (less any tax paid in UK). I’m not sure what happens if you don’t bring the interest money in straight away.

Whether to bring it over in a lump sum or in dribs and drabs is your decision. You might want to set yourself a couple of targets (e.g. if the rate goes above 2.x then bring in £20k but if the rate goes above 2.y bring in the remainder or …) It’s probably not worth aiming for losses. At the end of the day if you end up paying tax you have ended up making some money (more than you would have if you had brought it in on the day you arrived). It’s unfortunate (but life) that you have to share some of your good fortune with the government. (It’s a bit like sharing some of your good fortune, of having a paid job, with the government.)

Regards
Alistair
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Old Feb 16th 2005, 10:52 am
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Default Re: Taxation on Money Transfers for New PR's

Originally Posted by kirsty&al
Hello,

As others have said, you may want to get some advice.

The basic rule is that the cash you have in the UK when you arrive (to take up residence permanently) is notionally converted into $s. If you make a gain on this when you do the actual conversion, you can be taxed on the gain.

So if your 1st £20k is converted before or on the day of arrival then there is no gain and no tax to pay. If you convert money 3 months later and get a gain then you pay tax on the gain. If you make a loss, you can offset this against a gain. (I'm not sure on this one but you may be able to offset the loss against income under the Foreign Currency Gains Tax rules and a capital gain under CGT rules - which of these applied depends on whether you started your UK account after or before the 1 July 2003, respectively.)

Any interest you make on your UK money can be taxed as income by the ATO (less any tax paid in UK). I’m not sure what happens if you don’t bring the interest money in straight away.

Whether to bring it over in a lump sum or in dribs and drabs is your decision. You might want to set yourself a couple of targets (e.g. if the rate goes above 2.x then bring in £20k but if the rate goes above 2.y bring in the remainder or …) It’s probably not worth aiming for losses. At the end of the day if you end up paying tax you have ended up making some money (more than you would have if you had brought it in on the day you arrived). It’s unfortunate (but life) that you have to share some of your good fortune with the government. (It’s a bit like sharing some of your good fortune, of having a paid job, with the government.)

Regards
Alistair
Thanks Alistair for your detailed response, much apprieciated

Tincx
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Old Feb 16th 2005, 11:19 am
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Default Re: Taxation on Money Transfers for New PR's

Originally Posted by Tincx
Thanks Alistair for your detailed response, much apprieciated

Tincx
You're welcome.

Alistair
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Old Feb 16th 2005, 11:26 am
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Default Re: Taxation on Money Transfers for New PR's

I beleive that as long as you make an election that your foreign currency account is to be exempted and it has less than AUD250,000 then there is no tax.

The ATO link is here:-

http://www.ato.gov.au/large/content....tent/34043.htm

It's written in gobbledegook but the part that says:-

"...the election does have the effect that, while the limited balance test is passed, the following gains and losses in relation to qualifying forex accounts for which an election is in force are ignored for tax purposes:

* a forex gain or loss under forex realisation event 2 resulting from a taxpayer withdrawing an amount from a foreign currency denominated account with a credit balance
* a forex gain or loss resulting from a taxpayer depositing an amount into a foreign currency denominated account with a debit balance, but only to the extent that the reduction in the debit balance is a forex realisation event 4. Forex realisation event 1 will still apply to any disposal of foreign currency that occurs by making the deposit, or
* a gain or loss under the CGT provisions resulting from the taxpayer withdrawing an amount from an account with a credit balance, to the extent that gain or loss is attributable to fluctuations in exchange rates.
"

is the important bit.

Best check this with your tax advisor first!
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Old Feb 16th 2005, 11:41 am
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Wink Re: Taxation on Money Transfers for New PR's

Originally Posted by NedKelly
I beleive that as long as you make an election that your foreign currency account is to be exempted and it has less than AUD250,000 then there is no tax.

The ATO link is here:-

http://www.ato.gov.au/large/content....tent/34043.htm

It's written in gobbledegook but the part that says:-

"...the election does have the effect that, while the limited balance test is passed, the following gains and losses in relation to qualifying forex accounts for which an election is in force are ignored for tax purposes:

* a forex gain or loss under forex realisation event 2 resulting from a taxpayer withdrawing an amount from a foreign currency denominated account with a credit balance
* a forex gain or loss resulting from a taxpayer depositing an amount into a foreign currency denominated account with a debit balance, but only to the extent that the reduction in the debit balance is a forex realisation event 4. Forex realisation event 1 will still apply to any disposal of foreign currency that occurs by making the deposit, or
* a gain or loss under the CGT provisions resulting from the taxpayer withdrawing an amount from an account with a credit balance, to the extent that gain or loss is attributable to fluctuations in exchange rates.
"

is the important bit.

Best check this with your tax advisor first!
Thanks for that info. Now I come to think of it, I was reading about pensions when I learned about the six month rule. Cheers for clarifying this point.

Best regs

Paul
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Old Feb 16th 2005, 11:45 am
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Default Re: Taxation on Money Transfers for New PR's

Originally Posted by NedKelly
I beleive that as long as you make an election that your foreign currency account is to be exempted and it has less than AUD250,000 then there is no tax.

The ATO link is here:-

http://www.ato.gov.au/large/content....tent/34043.htm

It's written in gobbledegook but the part that says:-

"...the election does have the effect that, while the limited balance test is passed, the following gains and losses in relation to qualifying forex accounts for which an election is in force are ignored for tax purposes:

* a forex gain or loss under forex realisation event 2 resulting from a taxpayer withdrawing an amount from a foreign currency denominated account with a credit balance
* a forex gain or loss resulting from a taxpayer depositing an amount into a foreign currency denominated account with a debit balance, but only to the extent that the reduction in the debit balance is a forex realisation event 4. Forex realisation event 1 will still apply to any disposal of foreign currency that occurs by making the deposit, or
* a gain or loss under the CGT provisions resulting from the taxpayer withdrawing an amount from an account with a credit balance, to the extent that gain or loss is attributable to fluctuations in exchange rates.
"

is the important bit.

Best check this with your tax advisor first!
Hello,

I've looked at this one several times with the hope that it exempts you from the Foreign Currency Gains Tax. However, reading this with some of the other stuff around this area (and talking to my accountant here) I have come to the conclusion that this rule makes you exempt from reporting the gains (or losses) on every transaction of a foreign account (from an Oz point of view). That is, if you have say an account with £500,000 and you move some money out I think you have to calculate the gain for the time that you move the money. I think even with this election the ATO can still clobber you when you exchange the money into AU$ (I think it just exempts you from any gains made by it just sitting there in the UK).

I would be glad to be wrong on this one.

Regards
Alistair
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Old Feb 16th 2005, 12:09 pm
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Default Re: Taxation on Money Transfers for New PR's

Hello again,

I've just looked up my previous notes on this and wrote the following at the time.

Forex realisation event 1: Person has made a gain (due to the exchange rate difference) on the money obtained (bought, received, etc..)

Forex realisation event 2: Change in the right to receive foreign money (interest?)

Forex realisation event 3: obligation to receive money (e.g. money paid on options).

Forex realisation event 4: Obligation to pay (e.g. options)

In relation to the exemptions (previously stated):

* a forex gain or loss under forex realisation event 2 resulting from a taxpayer withdrawing an amount from a foreign currency denominated account with a credit balance
I think this means that if the bank changes the interest rate then the gain (i.e. more interest received) is not subject to the Forex Tax rules (but is still subject to income tax).

* a forex gain or loss resulting from a taxpayer depositing an amount into a foreign currency denominated account with a debit balance, but only to the extent that the reduction in the debit balance is a forex realisation event 4. Forex realisation event 1 will still apply to any disposal of foreign currency that occurs by making the deposit, or
I think this means you won't get taxed under Forex rules for paying off a deposit (and hence getting more benefit from the account).

* a gain or loss under the CGT provisions resulting from the taxpayer withdrawing an amount from an account with a credit balance, to the extent that gain or loss is attributable to fluctuations in exchange rates."
I think this means that you won't get hit for CGT when you move money into or out of your UK account.

It's all very complicated, but I think the general gist is to remove the effort of administering small accounts rather then letting people off the exchange gains.

Regards
Alistair
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