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HM Forces Terminal grant & Tax ?

HM Forces Terminal grant & Tax ?

Old Nov 17th 2009, 10:47 am
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Default HM Forces Terminal grant & Tax ?

Hi,
We are due to land in Oz (SA) Mid Oct 2010, I am due out of the RAF on 11th Dec 2010 and expect to receive my Terminal Grant and Resettlement Commutation 10-30 working days later.

If I come across as planned, would my lump sum be taxed by the ATO?
I did phone them direct but the girl on the phone was not a lot of help and suggested I would find out once I arrived in Oz!

If this is the case We would wait until we have received the lump sum before arriving. I am aware that I will be taxed on my pension by the ATO as several threads already on here have discussed. But its the lump sum thats the main worry.
Thanks in advance
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Old Nov 19th 2009, 5:48 am
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Default Re: HM Forces Terminal grant & Tax ?

Is there any Ex-Forces who can help on this on?????
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Old Nov 19th 2009, 6:05 am
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Default Re: HM Forces Terminal grant & Tax ?

People subject to Australian tax pay income tax on world wide income. It will appear that from Oct to Dec you will earn some money - your resettlement. If you are subject to Australian tax then that may be considered earnings. I suspect that the resettlent is tax free in the UK. I suspect that there is a dual tax agreement between the two countrieswhere you can offset your Australian liability by the amount of tax you pay in the UK - which of course is nothing in the case of the resettlement and whatever relating to your service pay for those three months. However if (as I suspect) Australian Servicemen's resettlement is untaxed then you will not be liable.


You do need to get expert advice but my tactic would include not being liable to Australian tax which may include delaying your departure. You might also get the resettlement paid into your UK or offshore account and bring it in by transfer. In speaking to an expert you should ask about tax on remittances but I doubt that they are taxed.

I know a bit about UK taxation and to be honest I doubt that you are liable because you are not working and that your pay for the three months to December and in any event that income has been taxed already and the resettlement wil be paid separately and not on your service payslip thus being invisible.

Good luck!
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Old Nov 19th 2009, 8:23 am
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Default Re: HM Forces Terminal grant & Tax ?

Originally Posted by Seacaptain
Hi,
We are due to land in Oz (SA) Mid Oct 2010, I am due out of the RAF on 11th Dec 2010 and expect to receive my Terminal Grant and Resettlement Commutation 10-30 working days later.

If I come across as planned, would my lump sum be taxed by the ATO?
I did phone them direct but the girl on the phone was not a lot of help and suggested I would find out once I arrived in Oz!

If this is the case We would wait until we have received the lump sum before arriving. I am aware that I will be taxed on my pension by the ATO as several threads already on here have discussed. But its the lump sum thats the main worry.
Thanks in advance
See this link to ATO http://www.ato.gov.au/individuals/co...tent/86325.htm
http://www.ato.gov.au/individuals/co...tent/33860.htm
Although not ex forces myself I know of many who have relied on this guidance as the lump sum you are referring to I beleive is treated as a lump sum from super here (equiv to UK forces 'pension' lump sum).
There are tax specialists in Australia who have specific experience with ex UK forces and their tax affairs and I would recommend you track down someone to help you when you do your first Australian Tax return. The only one I know of is in Sydney but OP on here maybe able to help.

Last edited by FiP; Nov 19th 2009 at 8:43 am. Reason: addition of link for definition of Australian Resident for tax purposes
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Old Nov 19th 2009, 8:57 am
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Default Re: HM Forces Terminal grant & Tax ?

Originally Posted by FiP
I would recommend you track down someone to help you when you do your first Australian Tax return.
When it's tax return time it's way too late to do anything about this issue! I would suggest the OP contacts Alan Collett. He posts on this forum (search his name). He is a UK and Oz qualified tax accountant and I am sure will be able to advise you now.
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Old Nov 19th 2009, 9:38 am
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Default Re: HM Forces Terminal grant & Tax ?

My understanding:
The terminal grant is effectively paid to you on your last day of service, so if you are in Australia prior to your discharge date, you will be liable to income tax. Technically, you will also be liable to pay income tax on your RAF Salary from when you land to when you discharge.

Read the leaflets available from the ATO website, they will give you the right information.

I would reccomend arriving after you discharge, although you will still pay tax on any interest you earn from the lump sum if you keep it the bank (in UK or Aus).
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Old Nov 20th 2009, 7:30 am
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Default Re: HM Forces Terminal grant & Tax ?

Hi Seacaptain

I have been in Oz for 6 weeks now and like you I had just finished my 22 in the mob. I arrived 2 weeks after my discharge and I received my lump sum two days prior to me flying.

I work with a couple of ex HM Forces and none of them have paid tax on their lump sum. However, as someone has previously said in this thread, if you leave it in the bank you will be liable for tax on the interest that you make.

Regarding your monthly payments, the ATO are not interested unless it is being streamed into OZ. This has come from the ATO and it has been said to 3 ex forces lads out here.

Hope this helps

John
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Old Nov 20th 2009, 7:36 am
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Default Re: HM Forces Terminal grant & Tax ?

Oh yes, I forgot to mention.

Make sure that you write to Xafanity Paymaster (details with your discharge docs) and let them know that you have/or will be living in Oz. They will contact HMRC and arrange it so that you pay the lowerst possible rate of tax on your monthly payments.

If you are having your monthly payments streamed into an Oz account then the above is not possible, you will have to pay Ozzie tax on it.

Regards
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Old Nov 20th 2009, 8:08 am
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Default Re: HM Forces Terminal grant & Tax ?

Originally Posted by jtr648
Hi Seacaptain


Regarding your monthly payments, the ATO are not interested unless it is being streamed into OZ. This has come from the ATO and it has been said to 3 ex forces lads out here.

Hope this helps

John
With respect that is not true. If you are tax resident in Aus, then you are liable to pay tax on your worldwide income. Even if you leave your pension sitting in a UK bank account (which is what my OH does as the exchange rate is so poor) then you are still liable to pay tax on it. Your mates will get a nasty shock if the ATO catches up with them.

The only ex forces person we know who doesn't have to pay tax was medically discharged and is in receipt of a forces disability pension. He has a private ruling from the ATO that he doesn't have to pay tax on the basis that it was payable tax free in the UK.
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Old Nov 20th 2009, 9:02 am
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Default Re: HM Forces Terminal grant & Tax ?

Thanks to all for you help so far, I have contacted the ATO again and they will call me back Monday / Tuesday evening and I will update you all with their verdict.
I have heard many people just wing it or leave it in the UK, but I don't want to fall foul of the ATO and up up losing half of what is my reward for 23 years service.

Many thanks
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Old Nov 20th 2009, 9:25 pm
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Default Re: HM Forces Terminal grant & Tax ?

Originally Posted by njk435
My understanding:
The terminal grant is effectively paid to you on your last day of service, so if you are in Australia prior to your discharge date, you will be liable to income tax. Technically, you will also be liable to pay income tax on your RAF Salary from when you land to when you discharge.
It's about "tax residence" and when this is established. Also potentially the terms of any double tax agreement.

In the absence of any clear information, unless there is a strong reason to land in advance, I would usually suggest delaying until afterwards. As long as one accepts that changes in circumstances prior to validation are notifiable to DIAC.
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Old Nov 21st 2009, 4:55 am
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Default Re: HM Forces Terminal grant & Tax ?

Originally Posted by JAJ
It's about "tax residence" and when this is established. Also potentially the terms of any double tax agreement.

In the absence of any clear information, unless there is a strong reason to land in advance, I would usually suggest delaying until afterwards. As long as one accepts that changes in circumstances prior to validation are notifiable to DIAC.
This is good advice.
Also the Revenue in the UK are not consistent in their treatment of returning ex-pats or on first and last year foreign earnings or with people keeping offshore accounts. I am not saying they are arbitrary but it is only in Oct lasy year that they clarified and established the rules. There is no reason to assume that the Revenue in Australia will be consistent.
My point is - supporting JAJ - if you are paid in the UK as a UK resident then there is no argument about tax on your lum sum. It is also a lot easier to avoid any issues if the money is 'offshore' until you know better what you intend to do with it. When you become resident for tax purposes you will have to declare world wide income - even if it is exempt from taxes - and lets face it , governments are after as much money as they can get their hands on.
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Old Nov 21st 2009, 9:48 am
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Default Re: HM Forces Terminal grant & Tax ?

Is there any Ex forces who have jumped during their terminal leave but before their official exit date?

Thanks to all your advice so far, I am expecting a call from the ATO on Monday/Tuesday evening (GMT) and will update.
Major inconvieniance if we have to delay till Jan 2011 but not the end of the world. But miss the chance tio acclimatise and search for work/interviews etc to start employment 13th Dec 2010.

Steve
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Old Nov 22nd 2009, 3:42 pm
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Default Re: HM Forces Terminal grant & Tax ?

Originally Posted by Seacaptain
Is there any Ex forces who have jumped during their terminal leave but before their official exit date?

Thanks to all your advice so far, I am expecting a call from the ATO on Monday/Tuesday evening (GMT) and will update.
Major inconvieniance if we have to delay till Jan 2011 but not the end of the world. But miss the chance tio acclimatise and search for work/interviews etc to start employment 13th Dec 2010.

Steve
As far as I can see, you have 2 issues to consider here as there has been a recent ATO ruling (it's a bit hard going but worth a read)
http://law.ato.gov.au/atolaw/view.ht...2009123/00001:

1. Can your lump sum payment be considered as not a superannuation benefit or payment of a pension or an annuity?
Maybe difficult to prove here in Australia as I understand some if not all your retirement payments are part of the Armed Forces Pension Scheme and all JPAC forms etc reference this

2. Recent ruling states that the lump sum payment would have to relate to the entire period that you were not an Australian resident for tax purposes, not most of it or part of it, you cannot split it. If part relates to payment for the period that you are an Australian resident for tax purposes (ie. October when you intend to land to December when your employment terminates) then it becomes taxable in Australia.

I don't have any tax expertise but do have a legal background with expertise in interpreting and writing legal wordings and case law etc.
I would definitely wait until your employment is terminated before you arrive here. I have asked around and the people I know in a similar situation to you all arrived after their termination date and payment of their lump sum in order to be sure they would receive this lump sum under UK income taxation rules.
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Old Nov 23rd 2009, 3:36 am
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Default Re: HM Forces Terminal grant & Tax ?

If it does come to the crunch though and you are liable to pay tax on your lump sum then you can presumably create a pension situation to the value of the gross amount and thus 'get back' the tax. But that is a strategic thing..

On the other hand - you are going to arrive in Oct and start work on 13 Dec? That is quite a tight timescale. I don't know what the job market will be like end of next yr but I do know that recruitment does tail off near to Xmas more generally. If that is a factor then delaying a month may make no difference -but it does take some time to settle in so Jan may be bead anyway.

To acclimatise why not go somewhere else that is hot and sunny?

Good luck.
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