Here's what could happen to your Australian investments when you move overseas

The decision to move overseas is often personal, but the investment implications can be significant. This article explores what business owners and investors should know about shares, property and capital gains tax before becoming a non-resident.

Here's what could happen to your Australian investments when you move overseas

People move overseas for many reasons. A career opportunity, a growing family, retirement plans, reconnecting with loved ones, or simply the desire for a different lifestyle.

Once the move becomes a reality, many Australians begin asking an important question: what happens to the investments I've built in Australia?

Shares and other investments may trigger a tax event when you leave

One of the most significant tax consequences of becoming a non-resident for Australian tax purposes relates to assets that are not taxable Australian property.

Taxable Australian property as follows. Anything not fall within these categories are not TAP and deemed to be sold on the date they cease Australian tax residency.

Broadly speaking, when an individual ceases Australian tax residency, these assets are treated as though they have been sold and immediately repurchased at their market value on the last day of Australian tax residency. This is known as CGT Event I1.

This deemed disposal can trigger a capital gain, even though no actual sale has occurred and no cash has been received. For investors with substantial unrealised gains in shares, managed funds and other investment assets, this can create an unexpected tax liability.

Importantly, any capital gains tax discount entitlement accrued while you were an Australian resident generally remains available. However, investors should be aware that tax legislation in this area continues to evolve, and professional advice should be sought based on current law at the time of departure.

As a result, the timing of a move overseas can become an important consideration, particularly where a portfolio contains significant unrealised gains.

Investment properties remain connected to Australia

“Property is often the investment Australians choose to retain when moving overseas,” says Winnie Yip, Supervisor in our Gold Coast office.

Unlike shares and many other investment assets, Australian real property remains taxable in Australia even after you become a non-resident. Many expatriates continue to hold investment properties for years, generating rental income and benefiting from long-term capital growth.

However, the tax treatment changes.

If the property continues to generate rental income, you will generally be required to lodge Australian tax returns and report the net rental income each year. Tax will typically be assessed using non-resident tax rates.

In addition, some tax concessions available to Australian residents may become restricted once residency changes. Capital gains tax discount entitlements can be apportioned based on the period you were a resident compared to your overall ownership period.

It's also worth remembering that state-based obligations don't disappear simply because you've moved overseas. Land tax rules differ between states and may result in additional costs depending on where the property is located and how it is used.

If you choose to retain a property that isn't producing rental income, ownership costs incurred during that period may form part of the property's cost base, potentially reducing any future capital gain when the property is eventually sold.

Selling Australian property comes with additional withholding rules

One of the biggest surprises for Australians living overseas is the operation of Foreign Resident Capital Gains Withholding.

When a foreign resident sells Australian real property, the purchaser is generally required to withhold 15% of the sale proceeds and remit that amount directly to the Australian Taxation Office at settlement.

Importantly, the withholding is calculated on the sale proceeds rather than the actual capital gain. This means the amount withheld can often be significantly higher than the seller's ultimate tax liability.

For example, a property sold for $1 million may result in $150,000 being withheld at settlement, regardless of the actual taxable gain.

This withholding amount is not an additional tax. Instead, it becomes a tax credit that is applied against the seller's Australian tax liability when they lodge their tax return for the year in which the sale contract was entered into.

What if the 15% withholding is too high?

In some situations, the standard withholding amount may be considerably more than the tax ultimately payable.

Contact your tax adviser and keep them informed with your circumstances and plans so they can plan ahead prior to you putting the property onto the market. This will include considering your overall position for the year.  

Where this is likely to occur, foreign residents can apply to the ATO for a variation notice that reduces the withholding amount.

This can be particularly valuable where the property has a relatively small capital gain, has generated losses, or where other circumstances mean the final tax bill is expected to be substantially lower than the amount being withheld.

However, timing is important. Applicants should generally allow at least 28 days for processing and ensure all Australian tax lodgements are up to date before requesting a variation.

Good records can save significant time and tax

“Whether you're leaving Australia next month or simply considering the possibility in the future, good record-keeping will always be valuable,” says Winnie.

When a property is eventually sold, your tax adviser or accountant will need information to accurately calculate any capital gain. This may include purchase contracts, acquisition costs, ownership expenses, capital improvements, rental history, residency timelines and records showing how the property was used throughout the ownership period.

The more complete your records, the easier it becomes to calculate the correct tax outcome and ensure you're claiming all available cost base adjustments.

We understand that it is difficult to keep all paperworks for an extended period of time. It is important that you stay in touch with your accountant and provide them information on a timely basis. It is going to be easier for the accountants to keep the records and trackers than you trying to go through all your storage boxes to locate the documents required. 

Planning before departure matters

Moving overseas doesn't mean your Australian investments disappear from the tax system. In many cases, they continue to create opportunities, obligations and future tax consequences long after you've left.

Before departing, it's worth reviewing your investment portfolio with a tax adviser to understand how a change in residency may affect your shares, managed funds and property holdings. A little planning before the move can provide far greater flexibility than trying to manage the consequences after you've already settled into life overseas.