zhoo

Hi,

My hubby and I are PR's of Australia. He recently got a great job offer from China and has accepted it. He is moving back late June 2009 while I remain here and study.

1) He will be out of OZ until July 2010. Will he be a non-resident for tax during 2009-2010 financial year?

2) He is going to transfer his savings to his Chinese bank account and then buy an Apartment soon after that. Will he be taxed on foreign exchange gain? ( The Yuan is now weaker in comparison with when he Transferred His Yuan's to Australia, i.e. he will gain on AUD to YUAN exchange in this period...)

3) Will ATO tax us on buying that Apartment in China if he will be a non-resident in 2009-2010? (AND What if he IS regarded a tax resident in 2009-2010?).


Sorry about my serial queries... They are so important that may affect our plan...

Looking forward eagerly to your replies

MartinLuther

Hello. Not an expert but I can give you my opinion.

1) It sounds like he'll not be tax resident in Aus. You may want to check with the ATO though just to be sure.

2) He certainly won't be taxed on transferring the money to YUAN.

3) You shouldn't get taxed by the ATO for buying a house or a rental here and I can't see any difference if it's abroad.

If he comes back to Aus then he will get taxed on rental profits (income minus expenses) and he can deduct loses. If he is not tax resident in Aus then his Aus bank should deduct 10% withholding tax from any interest. I'm not sure on the requirement but I think some non-residents file tax returns because of their Aus investments.

The most likely time you'll get hit for tax is if you comeback and then exchange money or you sell the apartment and then take a long time to transfer the money.

Hope this helps.

zhoo

Hi MartinLuther, Thank you soo much for your time and such soothing reply ...

Could you please tell me it's reason?Do you think he will not get taxed because he will not be a tax resident .... or maybe because of the fact that "exchanging any currency TO Aud is taxable in Australia, NOT vice versa i.e. FROM Aud to any other currency...)?

Sorry to be silly on that! I always thought Buying a property is taxable in OZ! ( like buying Good and Service i.e. GST !). So one will not taxed on the property he/she buys even if he/she IS a tax resident of Aus?


Yes, and I have heard that as we don't own a home here in OZ, He will not get taxed if he sells the Apartment up to 6 years. (Though I am not sure when exactly this 6 years will start to clock?... will it be counted from the date he buys the Apartment in china or from the date he comes back to OZ and becomes a tax resident again ? )

Is all the above paragraph seems right to you?

Yes , definitely , It helped us very much. Thank you

MartinLuther

That's it. It's only profit that's taxable. If I change my $ to £ then no tax. If I change the £ back to $ and make a profit then I get taxed on the profit.

Same for YUAN. If you transfer $ to YUAN then the ATO have no interest. I don't know what the Chinese authorities would make of this though.

In Aus, you pay stamp duty (a type of tax) on the property to the state where you buy the property. So if I buy a property in Qld I pay stamp duty to the Qld government (even though I could be living in Vic at the time). The Federal government (ATO) does not tax the property you buy. So if you buy a property abroad there is no Aus tax. However you may have to pay tax to the country that you are buying the property in. For example, if I bought a house in the UK, I would pay stamp duty to the UK government but nothing to Aus.

Again I don't know what the rules are in China.

If you live in the apartment as your home and you come back to Aus and don't buy another "home" then you have 6 years (as you say) from the time that you left the apartment without it being subject to tax on the "profit" (gains).

Not sure whether China will want a slice of the cake.

You're welcome. As I said I don't know anything about what the Chinese authorities will do. I've used UK examples as that's what I'm familiar with.

Once again good luck with your plans.

zhoo

Of course your valuable info are only for Aus not China... Each country has its own regulations . And we only take these merely as the opinions of someone who has a real experience regarding this kind of tax ,and not as a legal advice... Thank you anyway for your time, conscience and responsibility taking...


In which period is the profit you has made in your example ? The time between you departed Aus and return? or ... ?


Now a difficult question!

Suppose that my hubby sells the Apartment he has bought in china after 1 year before he come back to to me in Aus. lets postulate that the apartment price goes up and thus buy/sell gains him 50000 Yuan. But in the period between he enters China and then exits China, the YUAN/AUD gets :

1) weaker so that the 50000 dollar gain of Apartment buy/sell fades away with say -50000 dollar loss on exchange back of YUAN to AUD. what will be the tax implications on my hubby? Can he claim a loss if the 50000 profit is not Australia-sourced income? Is the gain of YUAN to AUD transfer is an Australia - sourced gain or not?


2) stronger so that the 50000 dollar gain of Apartment buy/sell gets fortified with say 30000 dollar extra! gain on exchange back of YUAN to AUD. what will be the taxable income of my hubby? 80000? 50000 ? 20000 ?

I am Terribly sorry if it is so complicated…

I don’t know where to find a tax agent/advisor who is fully observant and knowledgeable of above-mentioned issues, Someone who has the experience of the migrant-related problems… These are not common issues so an ordinary tax agent may not be awre of all its angles… Someone like you with the similar experience is precious to us …

leave_n_on_a_Jet

i dont understand why he would buy a property when he is only going to be there 1 year, when 20 million people have lost they job in China and property prices are falling, would it not be wiser to put the money in a term bank account?

In some countries you can buy and sell FX (money) with no tax to pay on any profits, Spread Betting in the UK at present is tax free.

if you think the price will rise Buy if you think it will fall sell, 50/50
i dont see it any differnt to putting money in the bank, as you even get interest on your money in your Spread betting account.

J

MartinLuther

Hi,

The exchange example I gave might not apply in your case I was giving an example of what the ATO are looking for. If you were to do the following then the ATO has no call on your "profit": Change money to YUAN, Become tax resident in China (non-resident in Aus), Live your life, Change money to AUD, Become tax resident in Aus.

The basic principle for the ATO taxing you is if you make a gain from the point you become tax resident (the last time not the initial time) and you exchange the money. The underlying principle is that they value your assets (including money) in $s when you become tax resident so any increase in value could be subject to tax.

With the gain on the apartment it all depends on when you sell it. Fairly much gains and loses go hand in hand. So if you are in a position where you wouldn't be charged on a gain then you would also be in a position where you wouldn't be able to claim a loss.

If for example you return to Aus, sell the apartment and in AUD it is worth $50k more than you bought it. There is not CGT applicable (assuming you didn't buy another place in Aus - i.e. the rule already discussed). If the apartment was worth $50k less then you wouldn't be able to claim a loss.

I'm not 100% sure on this as I only saw the rule once and have not been able to track it down again. I think that if you sell a house you have 12 months in which to exchange the money for it to be considered part of the same transaction. (This applies if you sell the house whilst here but would not apply if you sold the house before becoming tax resident.)

zhoo

Thanks for your comment and guidance mate


Dear MARTINLUTHER,

Thank you very much for your fast replies,

Although my hubby has almost taken his decision about going to China, he has not signed the work contract with his prospective Chinese employer yet. He is still considering all the positive and negative aspects of working in China and he will take his final decision in 2 weeks.


Now Lets postulate my hubby decides to remain in Australia (This time he will be a resident for tax). But he still has the decision to buy an Apartment in China.

a) He transfers his Au Dollars back to China and receives YUANs in his just-opened bank account in China( he closed his chinese account before we migrated here, thus he has to open up a new account in China, I don’t know if it is important?).

He profits on this transfer because now AUD/YUAN exchange rate is higher in comparison with the time he transferred his Yuan's to Australia (when we migrated to oz), i.e. he will gain on AUD to YUAN exchange-back during the period since we migrated to OZ until now.

(By the way , please note that the dollars he will transfer-back to China are exactly the same dollars he had exchanged from his YUANs in his former Chinese bank account to OZ when we migrated here. His salary from his work in OZ is deposited in another bank account. I don’t know if it is important? I just want you to know all the details when you reply…)


b) He will have his authorised agent buy him an Apartment in Beijing with the YUANs (transferred dollars) and will rent-out that Apartment.

c) Ater 3 years form buy, he will have his authorised agent sell that apartment for him. He profits 70000 YUANs on sell of the Apartment.


Which of the a , b , c incomes are taxable?


P.S
Could you please give me the ATO link stating that ( if someone is a tenant in oz his only overseas home is regarded his primary residence hence he doesn’t have to pay for CGT on the sale of that home till 6 years … ). I looked very much for it through ATO website but I couldn’t find that…

Let us once again thank you very much for your precious helps…

Best regards,

goatherder

Hi

Used to work in Tax in Oz about 10 years ago - so take this with caution. I'm also an investor in Australian assets from abroad so close to the non resident bits.

Is your Hubby a forex trader ? Does he or could he be classed as running a business in Forex trading ?

If not then I'd say you are not running a forex business and therefore under the australian system the forex gain is not assessable income.

Frankly the ATO are smart enough to realise that if they taxed everyone's non business forex gains they'd lose out because they'd have to include all of their losses. If you want to read up on this - go look at the ato site and look for all of the publications around horse racing - people loose money and they then try to claim they are running a horse racing business and the ATO shuts it all down!

If you start transferring cash around regularly then you might be running a business and hence the forex gains become taxable income. My current position would be that you are not operating a business and hence its not taxable income but that is entirely based on the facts you present.

Regarding the tax residency - you will become a non resident on the day you leave (the tax system handles having someone part year resident etc...)

You become resident on the day you appear. So regarding the gain (if any on the chinese property) I'd say it all depends on when you sell it and what your resident status is at the time.

Later

Goat

MartinLuther

Starting at the end. CGT and the 6 year rule.
http://www.ato.gov.au/corporate/cont...t/00150825.htm

Back the main question.
a) is not taxed by the ATO

b) If rental income minus expenses is positive then there is income tax to pay. If negative you can claim it as a loss against your Aussie income. You need to find out if China will tax him on a rental profit and you need to find out if Aus has a double taxation agreement with China. If it does then Aus will recognise the tax already paid to China.

c) If the 70k YUAN profit equates to an Aussie $ profit (e.g. the exchange rate doesn't wipe out the profit measured in $s) then there will be CGT to pay on this. As the asset has been held for 12 months you cut the profit in half and that will be taxed at your marginal rate (i.e. the rate you pay on the next $ earned).

pingpong

Hi, I was speaking to an accountant mate the other day who also used to work for the ATO. He said that as long as your not a forex trader and classed as running a business then any profit made by transferring funds was pretty much classed as good luck, obviously as long as your not doing it every other week. His example was that if you went to the US for a few months and bought 20k worth of travellers cheques, then the USD rallied and you decided to come back a week later you would have made a handsome profit. Thats good luck. If the reverse happened and you lost, thats bad luck...

zhoo

Dear Goatherder, MartinLuther and Pingpong,

I appreciate your comments,

No, my husband is not a trader and so we are much relaxed now.

Once again I thank you for your helps...

Best wishes,

Zhoo