scraggy2007

I'm here on a 4 year 457 visa and have just sold my house back home.

If I put money into a term deposit for 5 years and get 7% p.a. paid at the end of the period, will I be taxed on the interest if I leave Australia after year 4 to go back and live in my home country, a place where zero tax is charged on interest?

Since the interest would have been payed after I have left and no longer resident in Australia for tax purpose so dont need to declare anything, right?

What am I missing?

The 7% offered by some banks seems pretty attractive for short term zero risk...any catch?

MartinLuther

If you're on a 457 then you don't get taxed on income generated outside of Aus.

Just out of interest which country charges no tax on interest.

Hino

Why tie up the cash for five years to get 7% ?

You can easily get over 6% for less than a one year commitment, and 5.6% at call.

Last year I was earning over 8% on term deposits with CBA and if interest rates continue to rise, they might well be over 8% again in the foreseeable future.

Five years is a lifetime when it comes to cash investment

Centurion

I agree. 5 years is silly in Australia. I get 5.5 on call with no dodgy promo rate at www.raboplus.com.au, which being the worlds safest bank isn't too bad an idea given the government guarantees are going to stop.

ozhappy981

It's not clear from your post where the money will be invested.

If the bank account is outside of Australia, then as ML already said, you are never taxed on it in Australia on a 457 visa.

If the bank account is in Australia, then you need to declare the interest earned each year in your Australian tax return while you are in Australia. It does not matter that you will not be able to take the interest out of the account until after you have left.

Hino

If the funds are invested in a five year term deposit, then the only year in which the funds earn income and tax has to be paid is the year that the term matures ?

On a term deposit, there is ( effectively ), no interest earned, unless the funds remain invested for the agreed term of the contract.

JackTheLad

What is the point of a term deposit that earns less interest than an on-call savings account? All the banks (hsbc, ing, bankwest, raboplus) offer term deposits with a lower interest rate than their savings accounts?. No really, that is a question, can someone please explain?

They are offering 6 month term deposits 1% below their savings rate, and everyone knows interest rates are going to go up, so why take out a term deposit?


JTL

scraggy2007

Thanks for all the really useful replies.

Where on the ATO gov web site does it say 457 visa holders dont pay tax on overseas income? It would be great if that isn't the case !!!

Since I am living and working here, I thought they consider me as a resident for tax purpose, which is different from immigration residency status. That being the case I assumed I need to declare world wide income like any other "resident".

Btw, the country I refer to not charging tax on interest is Hong kong. There is also no VAT, no Capital gains tax, maximum 15% salary tax, lot's of air pollution, and not much space Don't get any interest right now in HKD savings accounts as its linked to USD...so looking at different options whilst I'm here.

On the other hand the FX rate for HKD (and USD) to AUD right now sucks...so I might be better off keeping it in HKD and investing in bonds or something like that over there. If I dont have to pay any tax on this investment whilst here then great !!

What makes it more confusing is i have no idea whether I'll want to stay on in Aus after 4 years or head back to HK ... ideally my savings would be in the local currency of where I end up living so I dont need to worry about crazy FX swings. Anyone got a crystal ball?

MartinLuther

Your are resident for tax purposes but you are also a temp resident who have a different rules to perm residents.

Have a look here. http://www.ato.gov.au/individuals/co....htm&page=3&H3

Do you also know about LAFHA?

MartinLuther

I've noticed this from time to time. Maybe it comes down to paperwork. Probably find that money in an at call account stays in there longer than a month (when averaged out over lots of people).

JackTheLad

So basically they're fishing for idiots?

"TAKE A TERM DEPOSIT AT 4.5% FOR 6 MONTHS"

"Our savings account offers 5.5%".. please ignore that

JTL

MartinLuther

It does make you wonder. Why bother advertising when they are lower? At one time it may have been down to the BAD tax (love that name) but I used to see the same thing happening in the UK.

ozhappy981

Many term deposit accounts credit interest to your account each year. I have had one of these types myself. (If you had some kind of cash emergency and withdrew your money, then you would of course lose the interest.) When the account matures, you then get your hands on the capital plus the interest.

With this type of set-up, for tax purposes you are liable to tax on interest as it accrues. So, each year as your account is credited with the interest (which you can see on the statement), you pay tax on that interest.

Of course if you have an account where they literally only credit the interest to the account on the last day of the fixed term, then you pay tax on all of it in that tax year.

Hino

You are quite right, I quite forgot the possibility of interim interest payments

I only use term deposits that pay on maturity in order to get the best return on investment.

If you choose to have your interest paid in 'installments', before the deposit has matured, then surely you will lose the 'compounding' effect of having the interest added to the capital and receive a lower rate of interest.

Does this not defeat the object of quarantining your capital for a fixed term ??

MartinLuther

Not entirely. You may want to spread the income over several tax years.