What happens to your overseas assets when returning to Australia from a tax perspective

For many Australian expats, the decision to return home is a big one, whether driven by lifestyle, family, or career changes. But amid the excitement of coming home, it’s crucial not to overlook the financial and tax implications, particularly what happens to your overseas assets when returning to Australia.

Once you re-establish Australian tax residency, the Australian Taxation Office (ATO) begins taxing your worldwide income and gains, not just what you earn in Australia. This means that assets you’ve built up while living abroad, such as retirement accounts, foreign currency, real estate, shares, and other investments, may now have tax implications under Australian law. Let’s break down how each type of asset is affected.

Understanding Tax Residency

Before looking at specific asset types, it’s important to understand how tax residency works. When you become a tax resident of Australia, you are generally taxed on your worldwide income. This includes income and capital gains from foreign sources.

The Australian Taxation Office (ATO) uses several tests to determine residency, including the resides test, domicile test, and the 183-day rule. It’s possible to become a tax resident the moment you arrive back in Australia if your intent is to stay permanently. If there’s any uncertainty around your residency status, it’s wise to get professional advice early.

Foreign Currency Holdings

Many expats retain foreign currency after moving home, especially if they plan to convert it at a favourable exchange rate. However, what many don’t realise is that currency gains can be taxable.

If you hold more than $250,000 AUD in foreign currency and its value increases relative to the Australian dollar before you convert it, you may be liable for capital gains tax. This gain is measured from the time you become a tax resident to the time of conversion or use.

If you’re holding significant amounts of foreign currency, it’s important to understand how exchange rate movements could affect your tax obligations.

Overseas Property

Foreign real estate is another common asset for returning expats. This may have been your home while overseas, which you now rent out, or perhaps a holiday home you still plan to use. Either way, once you become an Australian resident again, the tax treatment changes.

Any rental income earned from overseas property must be declared on your Australian tax return. While you can often claim a credit for tax paid overseas through the Foreign Income Tax Offset, you’ll still need to report the income locally.

Capital gains are also important to consider. If you sell a foreign property after becoming a tax resident again, you may be subject to Australian Capital Gains Tax. The ATO typically allows you to reset the cost base of the property to its market value on the date you resume Australian residency. This value becomes your new starting point for calculating any future gain. Keeping a formal property valuation from that time can make your tax reporting much easier later on.

Australian Capital gains tax concessions, such as the main residence exemption and 50% CGT discount, may also still be available to use when selling overseas property.

Shares and Other Investments

Returning Australians are often holding shares, managed funds, or ETFs purchased while abroad. Once you’re a tax resident again, all foreign investment income becomes taxable in Australia.

This includes dividends, interest, and capital gains. However, Australia typically applies a "deemed acquisition" rule. This means your cost base for these assets resets to their market value on the date you become a resident again. Future gains will be calculated based on any increase in value from that point forward.

Double taxation is a concern for many expats, but in most cases, tax paid overseas can be claimed as a credit in Australia. However, the rules are complex and vary by country, so accurate record-keeping is key.

Overseas Retirement Accounts

While living abroad, many expats contribute to retirement savings in their host country. These could be 401(k)s in the United States, SIPPs in the UK, or pensions in Singapore or Hong Kong. When you return to Australia and become a tax resident again, these accounts can become a tax issue.

The ATO does treat select overseas retirement accounts as foreign superannuation funds (FSF), which receive concessional tax treatment upon withdrawal. However, this definition and tax relief is generally only met by UK pension funds.

For the majority of overseas retirement accounts, they fall under the definition of a Foreign Investment trust under s 99B of the Income Tax Assessment Act 1936 (Cth). If you withdraw funds after becoming an Australian tax resident, a portion of that lump sum may be taxed as income. The taxable portion is typically determined by the composition of your account balance, specifically, the split between contributions and investment earnings, with contributions generally exempt from tax.

For most overseas retirement accounts, investment earnings generated throughout the year aren’t subject to tax with the ATO until a withdrawal is made. Planning ahead is essential. If possible, consider the timing of any withdrawals or transfers, as the tax consequences can vary widely depending on when and how the money is accessed.

Other Considerations

In addition to the main asset classes, some returning expats may have foreign trusts, partnerships, or overseas businesses. These structures can come with their own set of rules and reporting obligations, and may require special treatment under Australian tax law. The ATO takes foreign income reporting seriously. All assets and income sources should be fully disclosed to avoid penalties.

Final Thoughts

So, what happens to your overseas assets when returning to Australia? In short, you may be taxed on income or gains from many of those assets once you re-establish tax residency. Every situation is different, but the one constant is that early planning makes a big difference.

By understanding the tax implications of your overseas retirement accounts, foreign currency, real estate, shares, and other investments, you can take steps to manage your return to Australia in the most tax-efficient way possible.

Speak to a qualified tax and financial professional who specialises in expat clientele and cross-border finances. The earlier you get advice, the more options you'll have to protect your financial future.

Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.

If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the below link:

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General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.