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Insurance policy seen as Aussie income. Tax?

Insurance policy seen as Aussie income. Tax?

Old Mar 25th 2010, 9:56 pm
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Default Insurance policy seen as Aussie income. Tax?

Hi all. We are returning to the uk in June. Hubby is currently receiving a small insurance policy as he sustained an injury and can not work. If this paid straight into a UK will it be seen as Australian income. If we lose 40% in tax we are up shit creek.

Thanks anyone.

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Old Mar 26th 2010, 1:29 am
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Default Re: Insurance policy seen as Aussie income. Tax?

Originally Posted by PoppetUK View Post
Hi all. We are returning to the uk in June. Hubby is currently receiving a small insurance policy as he sustained an injury and can not work. If this paid straight into a UK will it be seen as Australian income. If we lose 40% in tax we are up shit creek.

Thanks anyone.

Poppet
How small is small ? Is it one lump sum or money paid fortnightly, monthly, etc

I'm no tax expert but I would have thought it would be regarded as income and therefore liable to the normal taxes paid on income.

It doesn't matter where you put the money, uk or Australia , it matters not. What is important is where you are tax resident. So up to June it would appear you are tax resident in Australia.

Best speak to a professional tax consultant.
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Old Mar 26th 2010, 2:09 am
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Default Re: Insurance policy seen as Aussie income. Tax?

Is this an Australian insurance policy? And you're going to be living in the UK? Are you asking about British tax, Australian tax, or both?
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Old Mar 26th 2010, 2:59 am
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Default Re: Insurance policy seen as Aussie income. Tax?

Originally Posted by JAJ View Post
Is this an Australian insurance policy? And you're going to be living in the UK? Are you asking about British tax, Australian tax, or both?
Australian policy. Will be living in the UK. Understand there is an agreement in place between Oz and Uk but would actually prefer to be taxed in the UK on it rather than be seen as Australian non resident but don't know if they make the payment to our UK account if it will still be seen as Australian income. Any help appreciated.

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Old Mar 26th 2010, 4:40 am
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Default Re: Insurance policy seen as Aussie income. Tax?

Originally Posted by PoppetUK View Post
would actually prefer to be taxed in the UK on it rather than be seen as Australian non resident but don't know if they make the payment to our UK account if it will still be seen as Australian income.
What you prefer does not come into it. Until the day you leave Australia you will be an Australian tax resident. You have no choice in the matter. As an Australian tax resident you pay tax on your world-wide income.

It therefore makes no difference whether the insurance company pays it into an Australian or a UK bank account. You will pay tax on it in Australia.
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Old Mar 28th 2010, 1:36 pm
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Default Re: Insurance policy seen as Aussie income. Tax?

Originally Posted by ozhappy981 View Post
What you prefer does not come into it. Until the day you leave Australia you will be an Australian tax resident. You have no choice in the matter. As an Australian tax resident you pay tax on your world-wide income.

It therefore makes no difference whether the insurance company pays it into an Australian or a UK bank account. You will pay tax on it in Australia.
I do get the bit about not having a choice Once we leave Australia then I'm not sure where it will get taxed. Do we pay ATO anything?
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Old Mar 28th 2010, 4:06 pm
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Default Re: Insurance policy seen as Aussie income. Tax?

Originally Posted by PoppetUK View Post
I do get the bit about not having a choice Once we leave Australia then I'm not sure where it will get taxed. Do we pay ATO anything?
IF it is considered income in Australia, then once you leave you will probably still be taxed on it by the ATO at non-resident rates.

IF it is considered income in the UK, you would add it to your tax bill and claim credit for the Australian tax.

IF the Australian tax is higher than that the UK levies, you may not be able to claim any relief for it.
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Old Mar 28th 2010, 4:17 pm
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Default Re: Insurance policy seen as Aussie income. Tax?

I can tell you nothing about Australian tax or their finances, but if this was in reversed, and you received payment from an insurer for an work related injury in the UK, you would not be taxed on this.
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Old Mar 28th 2010, 7:02 pm
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Default Re: Insurance policy seen as Aussie income. Tax?

My understanding is that you will be taxed according to where you spend the majority of the financial year and you will be taxed at the appropriate marginal rate of whichever country you spend the larger portion of your time.

You will not be taxed twice, since there are agreements between Australia and the UK to stop double dipping. Also, you will not necessarily pay 40%. The percentage you pay will take into account other income and tax will be calculated on the total.

BTW As from next financial year in Australia you will not have to file a return, so that will make things a bit easier, so long as you supply a tax file number to the insurance company they should not withhold any tax, and if you get a demand from the ATO then you should be able to prove you are no longer a resident for tax purposes.

That's the way I'd call it. The one thing I am not sure about is that there appears to be a bit of limbo land with regard to the differences in the financial years (Australia is July 1 - June 30, but the UK is a calendar year). So, Hypothetically, if one returns to the UK, for example, on the 1st August and takes a lump sum at that point one would have spent only one month in Australia for tax purposes. However, since the UK financial year will only have 5 more months to go, one would have spent the majority of the UK financial year out of the country for tax purposes.

I'd be interested to know to what extent the UK and Australia cooperate in regard to tax, because if it is minimal there could be a bit of a loophole there one could exploit. Even if it's not legitimate, in the event cooperation between Oz and the UK is minimal, one may get in under the radar.

Martin.

Last edited by Martinw02; Mar 28th 2010 at 7:09 pm.
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Old Mar 30th 2010, 12:25 am
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Default Re: Insurance policy seen as Aussie income. Tax?

Originally Posted by Martinw02 View Post
so long as you supply a tax file number to the insurance company they should not withhold any tax, and if you get a demand from the ATO then you should be able to prove you are no longer a resident for tax purposes.
I am afraid whether the insurance company has a TFN from Poppet's husband has nothing to do with whether Poppet's husband will pay tax on it.

Up until the date of departure, Poppet's husband has to pay tax and Medicare in Australia on his worldwide income at resident tax rates. This will most definitely include the income from his insurance policy (because under Australian tax law such income is taxable).

From his date of departure, Poppet's husband has to pay tax in Australia on any Australian income he may have at non-resident rates. Whether the insurance policy counts as Australian income or not will be a matter of fact - not a matter of Poppet's wishes. Without seeing the clauses in the insurance policy we can only guess.

One guess might be that the policy no longer pays out after the claimant has permanently left the country. Poppet ought to check that!

Another guess is that the policy will continue to pay an income until such and such a date. If that date is in the 2011 income year (and if the income is regarded as Australian income), then Poppet's husband will have to file an Australian tax return as a non-resident and pay Australian tax at non-resident rates - even though he now lives in the UK. Whether the money is paid into an Australian or UK bank account does not matter. What matters is whether the income is classed as having an Australian source.
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