As we tick over into the new Australian tax year your thoughts might start turning to the completion of your 2018 Australian tax return.
At least they do in the minds of registered tax agents!
Here are my top 12 tips for those of you who have UK and Australian tax returns to prepare for 2018. They should be particularly helpful for those of you who moved to Australia for the first time in the year to 30 June 2018, although others who arrived earlier may find the list useful.
- Know when you became a tax resident of Australia, and when you ceased to be a tax resident of the UK. This is important, as the date on which your tax residency status changes will affect what income is taxable, and where it is taxed. Remember that if you are a tax resident of Australia your worldwide income is taxable in Australia – subject to tax tip number 2.
- Confirm your visa status in Australia – and whether you are in a relationship with an Australian. This is as equally important as your residency status: if you are the holder of a temporary residency visa and are not in a relationship with an Australian (or – technically – what is known as an eligible New Zealand citizen) your tax affairs are likely to be a lot simpler, as your non Australian source income is not taxable in Australia.
- Know your tax return filing deadlines. The late submission of a UK tax return will trigger an automatic late filing penalty. The late submission of an Australian tax return probably won’t, but you will have a red mark against your name. As a general rule, file the UK tax return electronically to get an extra 3 months, and use a registered tax agent in Australia to get an additional 6+ months to lodge your Australian tax return.
- Unless you can access the benefits of tax tip number 2 remember that certain income can be taxable in the UK and in Australia – most commonly rental income from a let property in the UK when the property is owned by a tax resident of Australia. The upside is that any tax you pay in the UK is creditable against the Australian tax liability on the same income, known in Australia as a Foreign Income Tax Offset.
- In Australia the rules for claiming tax deductions on rental property are different to the UK, so if your UK rental income is taxable in Australia you should be thinking about having a depreciation report prepared. This report will set out the assets that can be depreciated (including the cost of the building in the form of a capital works deduction, if construction of the property commenced after 22 August 1992). Contact us for details of the specialist firm of Quantity Surveyors with which we work – they have a UK office and their fees are tax deductible on your Australian tax return.
- If you can’t access the temporary tax resident exemptions discussed at tax tips number 2 complete your UK tax return first, so you can identify whether there is any tax payable that can be claimed as a tax credit on your Australian tax return in respect of any income that is taxable in both countries.
- If you can access the temporary tax resident exemptions you will still need to determine the amount of your foreign income so it can be included on your Australian tax return as what is called “Target Foreign Income” (TFI). For temporary tax residents TFI isn’t taxable in Australia, but it can affect your entitlement to certain benefits payable through Centrelink.
- Make sure you include all income that is properly taxable on your UK and Australian tax returns: in Australia those of us who are tax agents can access what is called a Pre Filling Report which details information the ATO has on its records about you – most usually information about salaried income (gross pay, PAYG withheld), interest income where your Tax File Number has been provided to the bank, and private health insurance. If you want to lodge your tax return unassisted the same pre-filling information is usually available through the ATO’s myGov (allow a few weeks from the end of the tax year for information to appear).
- If you have to complete a UK tax return remember to complete the Residence supplement. Once you are no longer a resident of the UK this supplement is the means by which you claim the UK personal allowance, to which most migrants to Australia remain entitled and which reduces the amount of UK source income subject to UK income tax. Note that you cannot lodge the Residence supplement electronically through the HMRC web site: you must lodge a paper tax return by 31 October following the end of the tax year, buy commercial tax return software, or use a firm of tax accountants – such as us – who prepare and lodge UK tax returns electronically.
- Consider using a registered tax agent (such as us) to file your Australian tax returns. As noted at 3 above you get more time to lodge the return. Plus our fees are tax deductible, and we will probably have a better idea of what can and what shouldn’t be claimed as a tax deduction on your tax returns. In the first year or two in which you are living in Australia it frequently makes sense to use someone who has seen people before who are in your situation. And we can assist with your UK tax returns, so you only have to deal with one firm of accountants – which makes dealing with tax a lot easier for you.
- Looking forward: consider taking out suitable private health insurance if your income will trigger a liability to the Medicare Levy Surcharge. The cost of private health cover can be less than the Surcharge payable to the ATO.
- If you have sold your UK property while living in Australia – or are considering doing so – remember that there is an obligation to lodge a Non Resident Capital Gains Tax return with HM Revenue within 30 days of the sale completing. The UK tax return lodged for the year of the sale will ask for the reference number associated with the NRCGT return – so don’t forget to file it!
We hope this helps.
Good luck completing your 2018 tax returns, and if you need any help – or would like an initial freebie chat to discuss how we might help – please feel able to contact Collett and Co Tax.
Our fees are fixed in amount and will be agreed before you have any commitment to us.
Happy 2018 Tax Time!