Think before you swipe right on that dating app – because if you hook up with the wrong person, your tax situation could completely change.
What could be more romantic than thinking about tax on Valentine’s Day? The calculations, the spreadsheets, the auditing… #love.
But there may be a nasty surprise hidden among the flowers for the unwary.
If you’re the holder of a temporary residency visa, working in Australia and wind up in a de facto relationship with an Australian citizen or permanent resident, there may be an unwelcome third wheel – taxes on your worldwide income and assets.
And if you’re the love-struck Australian, a partner’s assets could change your financial situation too.
People often come to Australia and fall in love with a local, which means they are more likely to want to become permanent residents – they have no other choice if they want to stay.
As far as the Australian Tax Office (ATO) is concerned, their assets will come with them too. De facto status means you must declare your partner’s income on your tax return.
So, before you put a ring on it or shack up together, it pays to think about your tax situation. Unless, of course, you fall completely in love and you don’t care, and are happy to pay as much tax as possible.
Or you’re from New Zealand. Then things are a little different.
Our Kiwi friends may be temporary residents in Australia indefinitely – and temporary residents only pay tax on Australian-sourced income and foreign employment income.
Through a Trans-Tasman residency agreement, New Zealand citizens are granted a temporary visa every time they come into Australia and it’s cancelled every time they leave – they don’t know it because it automatically happens at the border but that’s what happens.
Typically, they are better off if they have assets overseas or if they inherit the farm, it’s only taxable in New Zealand and not taxable here. And New Zealand doesn’t have a capital gains tax (CGT).
There are some downsides with not being a permanent resident – NZ folks don’t get any recourse with social security, don’t get to vote or anything like that.
But otherwise, New Zealanders can almost forever keep their worldwide income outside of the Aussie tax system and capital gains tax, other than those connected with Australian property, are not subject to Australian tax.
For those people not from New Zealand, here’s some more conversation fodder for that candlelit dinner.
When you do become a permanent resident, you are deemed to have reacquired your worldwide assets for their market value in Australian dollars as of that date, which has an impact on CGT.
As most people know, there is a 50% discount on CGT paid if the asset is retained for longer than 12 months – but that 12 months only starts from the date of permanent residency, not the date it was acquired.
So you could have held an asset for 10 years and sell it six months after becoming a permanent resident, and you wouldn’t get a 50% discount.
While you are only paying tax on the capital growth in those six months, it might still be useful to consider the timing of that asset disposal.
Then you have the foreign exchange issues where you hold non AUD cash denominations more than AU$250,000, which is about GBP129,000, US$162,000 or EUR151,000.
Every time you transact on that foreign account, it is lovingly converted to Australian dollars at the time of the transaction, even if the transaction is Pound sterling to Pound sterling, for example.
If the account holding that large sum is used to pay a bill in Australia, the exchange rate at when the money went in and when it came out matters.
A stronger pound takes more Aussie dollars to pay the bill, so there’s a capital loss. On the other hand, if the pound is weaker then it costs less Aussie dollars, so there is a gain.
This Valentine’s Day might deliver chocolates and a realisation that the only thing more complicated than your relationship is your tax status.
But it definitely pays to understand residency tax matters when connecting with someone from another country.
