Tax strategies for returning expats

Navigating two tax systems requires forward thinking: understand the implications in both countries before making irreversible decisions.

The starting point: tax residency

Your tax residency status underpins every other tax consideration. Expats who have lived overseas for several years are typically non-residents for Australian tax purposes. When you return intending to settle, you’ll likely become a resident again. The exact date of this change can be critical, influencing transaction timing and other key decisions.

Timing matters: capital gains tax (CGT)

CGT is a major area of focus, especially after the 2020 changes to the main residence exemption. Selling your former family home while overseas can now trigger a tax liability, so it’s usually best to wait until after you return. If an expat dies while still overseas, their Australian beneficiaries could also face unexpected CGT on a later sale of the property.

For investment properties and holiday homes, CGT applies to the entire ownership period, regardless of residency. The priority should be maximising the cost base, renovations, capital costs, and eligible holding costs, to reduce taxable gains. Note that the CGT discount is reduced for periods of non-residency.

A fresh start: shares and managed funds

Financial investments are treated differently. While you are a non-resident, no capital gains accrue. When you become a resident again, you are deemed to acquire these assets at market value, setting a new cost base.

Future CGT only applies to gains made while you’re a resident. To access the 50 per cent CGT discount, you’ll need to hold the asset for at least 12 months after returning.

A hidden trap: foreign currency

Foreign currency holdings can create tax surprises. Gains or losses are measured from the date you become a resident until funds are withdrawn. These are taxed as ordinary income (not under CGT), and losses may be deductible. Large balances held post-return can result in significant unexpected tax bills.

Keep it clean: employment transitions

When wrapping up foreign employment and starting anew in Australia, even within the same multinational group, it’s best to ‘keep things clean’.

If you’re expected to receive any bonuses or termination payments, ideally try and get these before returning, especially if coming from a lower-tax jurisdiction like Singapore or Hong Kong.

Timing is key: employee share schemes (ESS)

ESS awards can be complex. If awards vest before you return and are taxed overseas, Australian ESS rules generally won’t apply. However, if awards vest after you’ve returned, the full amount may be taxed in Australia, even if part of the service period was spent working overseas.

Understanding the structure and timing of your ESS and the resulting tax implications is essential.

Proceed with caution: foreign pensions

Foreign pension entitlements raise a lot of complexity. Tax outcomes vary widely depending on the country and your circumstances. Planning is crucial to minimise tax both overseas and in Australia.

Be aware of Section 99B anti-avoidance rules – a key ATO focus – which can apply where a foreign pension plan is treated as a trust, potentially creating large and unexpected tax liabilities.

Don’t ignore it: private health insurance

Once you’re a tax resident again, you’re expected to hold qualifying private health insurance for yourself and your dependents. Failing to do so may result in the Medicare Levy Surcharge, depending on your income level. This is easily avoided with early planning but can be costly if overlooked.