Swerv-o

Hi guys, wonder if you could help me out with a quick tax query that has come up:

Imagine that I had an Australian bank account, bearing interest prior to my arriving permanently in Australia.

In month A, I earned interest on that account, which was paid on the 28th day of that month. I subsequently arrived in Australia with a view to permanently remaining on the 31st day of the same month. I applied for my TFN some time into the following month.

So the question is, where should the tax on that interest have been paid?

Does my arrival on the 31st of the month make me liable for Australian tax on the interest for that month, or does the fact that the interest was paid prior to my arrival mean it was a UK based tax liability?

Anybody got any clues? I spoke to my accountant, and he was incredibly hazy and unhelpful about it, so this was the next logical port of call!


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asprilla

I reckon it would be payable in the UK but I don't know for certain. Just ring the ATO and ask, they are very helpful.

cheers

E3only

I am sure there exists a clause (I believe 183 days min stay to be paying tax in Australia)

You will most certainly have to pay tax in the UK and club that income into your tax return.

RobertC

I understand that it is at the point where you are issued a Tax File Number in Australia that you become oficially TAX resident and then income form any assets worldwide are payable to the Australian government.

The best advice is to contact the ATO and get a definitive answer though.

Swerv-o

That was my understanding of it, though I am willing to accept that I am wrong.


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ABCDiamond

Obviously, as far as the UK tax office is concerned you paid tax in Australia..

and as far as the Australian Tax Office is concerned you paid tax to the UK...


I never said that... honest....

Swerv-o

It would be naive to think that they didn't speak to each other about such things!


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ozhappy981

The bank has your address as being outside of Australia and therefore classes you correctly as non-resident. As a non-resident 10% tax is automatically deducted by the bank from your interest.

Nothing you can do about it - them's the rules .

.
As soon as you give the bank an Australian address but not a TFN, they class you as resident without a TFN and deduct tax at 46.5% from interest paid from now on. They are required to do this by law.

Once you provide the bank with your TFN, all interest paid from that date will be paid gross, i.e. no tax will be deducted at all.

At the end of the tax year (after 30 June) you do your tax return. If it turns out you overpaid tax (for example as a result of when the 46.5% was deducted) you will get a refund.

(There is never a UK tax liability.)

Swerv-o

The bank failed to deduct any witholding tax - 10% or otherwise - for that period - the 1st to the 28th of the month, so there is a discrepancy over my interest.

I can't get a straight answer as to where the tax liability lies re. the dates of entry etc. It's looking like it lies here though, which is a pain, as it would be much cheaper if it were the other way around.


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Burbage

If you are a resident for tax purposes are you not taxed for all earnings in that country for the entire tax year? I would say that you need to declare it in Australia as taxable income and then declare it as already taxed overseas income on your british tax declaration to avoid double taxation. Bottom line is you'd need to look at the fine print of the tax treaty between the UK and Oz.

louie

You don't become resident for Oz tax purposes until you arrive with the intention of staying. So if you received interest before you arrived, I don't think it would be taxable in Oz.

Conversely, if you were resident in the UK, you would be taxable on worldwide income until you ceased to be resident (or strictly the end of that tax year). If you were still in the UK when you were credited with the Oz interest, it would be taxable in the UK. If, however, you left the UK say on the 25th for a week in Thailand and the interest was credited on the 28th, you could claim "split year treatment" in the UK (assuming you are now in Oz for a significant period of time) and it wouldn't be taxable in the UK either.

Or at least that's my understanding!

E3only

Let's just read http://www.ato.gov.au/individuals/co...tent/64131.htm shall we?

Burbage

All that says is whether you are a resident for tax or not, which isn't the question asked, although if he is resident for less than half the tax year he probably doesn't have to pay tax, but we don't know which month "month A" so we can't ansew that.

The question appears to be whether money earned in Australia prior to taking up tax residency has to be included in the taxable income statement. And I think the answer is, as I said above, that once you are a tax resident for a particular tax year you must declare all money you earned in Australia in that tax year (from 1 July to 30 June). If the money was earned in the previous tax year you don't need to declare it.

Swerv-o

The month in question is July, and I agree with what you say in your second paragraph - I think that I will be liable for this tax to be paid in Australia, which is a shame, as I was rather hoping I could pay it in the UK, as the burden would be much less there.

Looking through the rulings, it appears that a part month - i.e. the last day - counts as an entire month.

The waters are muddied a little by talk of adding a witholding tax schedule to the tax return for months that you weren't resident in Australia. I think that witholding tax should have been deducted by the bank at source when they made the payment on the 28th, as they had no idea that I would be arriving 2 days later, and then that schedule should be added to the relevant tax return. Unfortunately for me, the bank neglected to take the witholding tax so I can't create a schedule.

So now, am I liable to pay the missing witholding tax (10%) or the full tax at my marginal rate?

Stupid tax. And my accountant is of no help whatsoever!


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ozhappy981

Are you saying the bank paid the interest on the 28th of July and you arrived on the 30th or 31st of July?

If you indeed arrived as a permanent resident on 30th or 31st July you are deemed to have been in the country for all of July for tax purposes (which also means you get the tax allowance for July).

For the total tax due from you for the 2009 income year (1 July 2008 to 30 June 2009), it then makes absolutely no difference whether the bank deducted nothing, or 10% or 46.5%. The total tax due for the year remains the same (see below):

1. Come 30 June 2009, add up all your income for the income year. Whether this is wages, bank interest, dividends etc etc - it is all added up. The total is your assessable income for the year.

2. You may be eligible for certain deductions (depends on your circumstances). These are deducted from the total in step 1.

3. Take $6,000 away from the total in step 2 if you've been in Oz the full year, or $500 for every month or part-month that you were in Oz. (Even if you arrive on the last day of a month that counts as "part-month" and you still get the full $500.)

4. The result from step 3 is used to calculate your tax (look on the ATO website for the bands and rates).

5. From the total tax calculated in step 4 deduct certain tax-offsets you may be entitled to (depends on your circumstances).

6. Add Medicare levy (and Medicare surcharge if you have to pay that). The new total is your total tax due for the year.

7. Now deduct any tax you have already paid during the year. For example, the tax you paid on your salary and any tax the bank may have deducted.

8. The total after step 7 is the tax you've still got to pay or (if it's a negative number) it's the refund that's due to you.

As you can see, the total tax due for the year that you get after step 6 is not affected by what the bank did or didn't do. If the bank didn't deduct any tax, you may end up with a larger balance to pay in step 8 or a smaller refund, but the total tax due for the year remains unchanged.

Hope this makes sense.

P.S. I work for a registered tax agent, but I am not a registered tax agent myself and the above isn't tax advice.