As Kevin Rudd and delegates from the G20 Summit return home to their respective countries many Australians are also returning home but perhaps not on their own terms.

One major issue that was raised by many G20 nations was in relation to how they can perhaps raise taxes from those that avoid paying taxes altogether. Governments are also facing a reduced income stream and more welfare burdens with increasing unemployment and hence are looking for other income sources. Tax havens such as Isle of Man, BVI, Canary Islands and the Philippines are some of their targets, these tax havens are commonly used by expats. I myself am looking at the implications on my own affairs when the time comes for me to move home. 

The G20 Summit also brought about a number of changes to the way that the global economy will work in the future and who the major players will be. One of the changes in world economic power has been from the USA and Europe to the USA, India and China. Russia would like to be included in this trio however needs the oil price to stay high in order to undergo some positive changes.

What does this mean for the world economy and more importantly for many Antipodeans (Aussies and Kiwis) returning home after working overseas? For your investments it may mean a reallocation of your portfolio, to emerging economies in the changing market, depending on your time horizon however, from a tax point of view this means that the world is becoming committed to sharing information on “people of interest”. Personally I believe that paying tax is never a bad thing – it means you’re making money and can sleep at night!

The cost of leaving the GCC

There are many issues and costs you need to consider when leaving the UAE. Many expats have lived on the good times and not saved a lot for the bad times. Loans have been racked up, which may have break costs, and perhaps we have bought things that normally would have been unrealistic back home (a Porsche springs to mind!). The exchange rate might not be in our favour and the actual physical cost to return home (containers, flights and deposits lost on property) quite frightening???

Bank account

There is a real possibility that your local bank account would be frozen if the employer informs your bank of the loss of your employment. Most employers will not put people through this however we always recommend people to have the majority of their savings in an offshore account to avoid this happening. One of the main reasons the bank takes this action is if you have an outstanding loan. It is important not to remain silent, and speak with them about this, (after you have moved your cash out!). Many reports have suggested that you can simply leave and your debts will stay here without any recourse. International debt collectors do exist and can track people down and recoup any outstanding loans you have. It may impact your credit record when you return home and borrowing for a home or a car may not be available to you.

Also more importantly if you leave your debts behind you may not be able to return, it may not be on the top of your list now, however in 5 years time the perfect job may be back in the GCC! 

Other things to think about:  Property - ownership, renting letting the land lord know about cheques etc

There is never a good time for a redundancy to happen and it can be viewed as an opportunity or disaster. If you manage your affairs correctly you can come through the other end relatively unscathed if not a little dishevelled.
Also, from another point of view it could be potentially advantageous for people heading home from now until the end of the tax year instead of at the start of the next one.

TAX: the potential cost of returning home....the raw facts

We have all been enjoying life in the UAE not paying any direct tax on our investment or income from the UAE government, however what are the tax implications when you move home? Some questions you may ask:
1) What will I be taxed on when I go home (income, transferring money home, sale of a property)?
2) Financially, is there a better time of the year to go home?
3) Shall I keep offshore investments?
4) I haven’t submitted a tax return since I have been offshore what happens when I get home?

We have spoken to an Australian Accountant Geoff Taylor from Majenda Online with regards to the above questions; he will also be coming over to Dubai for a Seminar towards the end of May.

As expats residing in the UAE there are other issues we obviously have to be concerned with regards to any debt, visa issues and an obvious one is tax implications of selling assets, keeping assets or even I haven’t submitted a tax return in the past few years is this a problem.

What will I be taxed on when I go home?
There is no tax payable on the transfer of funds back to Australia. This is the same as if you were in Australia, would you pay tax on transferring money from ANZ to Westpac?  Geoff also indicated you need to check the fees payable by the financial institution you choose to transfer your funds back to Australia. Sometimes there are better ways to transfer funds then from bank to bank for example a currency broker is a good way of doing so.

If you own Australian property, there is no change to the tax status of the investment when you move back to Australia.  Australian property is always subject to capital gains tax irrespective of whether you are non resident or resident.  The net rental income also forms part of your Taxable Income whether you are non resident or resident for tax purposes.

If you own Australian shares, the “cost base” is calculated based on the share price on the date you become a resident of Australia.  You simply need to check the closing price for the listed stock on the day you return to Australia.  If you don’t sell the stock, then there is no tax payable.  Capital gains tax is only payable when the shares are eventually sold.

Financially, is there a better time of the year to go home?
 Yes- based on the timing in the tax year. Generally speaking returning with 6 -3 months left in the tax year is better than returning in the first six months because of the way the tax authority views your tax status for residency purposes.  If you return early in the financial year you may be taxed on income you have earnt offshore if you are classed as a resident for that entire financial year.

Upon returning to Australia, Interest Income once again becomes subject to income tax rather than the 10% withholding tax paid by non residents on funds invested in Australia.  Residents are required to declare any interest income. If you have informed your bank that you are offshore they generally deduct the withholding tax for you.

Shall I keep or sell my offshore assets when returning home?
Retaining offshore assets when you return to Australia can cause tax problems.  You do not always have to sell these assets and you can hold them when you return home however the tax authorities may view this as an onshore asset for tax purposes. You really need to seek professional advice if you are intending to retain investments in offshore managed funds or property overseas after returning to Australia.  

I haven’t submitted a tax return since I have been offshore what happens when I get home?

If a tax agent or accountant prepares your tax return, you have until 15th May 2009 to submit your 2008 tax return.  If you don’t use a tax agent / accountant, then your return was due at the end of October last year.  There are penalties for late lodgement so it pays to see a tax agent or accountant if you haven’t yet lodged your return for 2008 or previous years (spoken like a true accountant!). If you haven’t submitted for last few years a tax accountant is the best person to deal with this, and if tax is payable then interest will be charged on the outstanding tax owed to the tax office.

Going home or staying - what next?

Many billions of dollars have been pledged to resolve the world’s economic troubles from Leaders at  the G20 summit. At the moment we appear to be in an uncertain market that still has the ability to rally. Most investors have lost money since the recent peaks back in 2008 however looking at the past it has never taken longer than six years to regain the peak. Agreed that is a pretty poor return from the peak, but starting from where we are now, it is not unreasonable to expect the market to at least double in the next five years. That’s certainly not a bad rate of return.
Whilst not everyone will be in a position to take advantage of the benefits of the current market conditions people with cash reserves have the opportunity to take advantage of these markets. Whilst tax should be a consideration for your investment decision it should not be driving your decisions. As I said before tax is not necessarily a bad thing.
For many people the costs of leaving the UAE can be very high, not just in relation to the immediate financial loss but also the opportunities Dubai once presented. For people who have to return home they should consider to look at the options to go overseas again, Australia and New Zealand will always be there. For those that stay in the UAE the low tax environment may present more opportunities than ever before as taxes around the world have the potential to increase with Governments needing to raise more income.