Expat tax compliance in 2019: staying ahead of the changes

Ursula Lepporoli Director Deals Tax Legal
Ursula Lepporoli, Director, Deals, Tax, Legal

While it seems the absurdity of the outside world is on the rise I am comforted by the slow and steady march that tax takes into the future. Yes, despite the constant chatter about disruption the pace at which change really occurs in the individual income tax space is quite comfortable or even at times still slower than preferred.

2018: The ATO has data…watch out or pay the price

I live and breathe expatriate tax every day and really enjoy helping  clients through the complexities of remaining compliant.

So what trends did we encounter after working with thousands of taxpayers? No surprises, the Australian Taxation Office (ATO) is focused on revenue collection. Let me count the ways…

Higher Education Loan Program (HELP) repayments

You can run but you can’t hide. Well at least not anymore. Even non-residents are required to report their worldwide income to the ATO and pay back their debts from abroad. It will be interesting to watch how the ATO will enforce this position.

Medicare Levy Surcharge

With the change to our migration laws there was a mad scurry to get permanent residency in 2018 in the expat community. Often private health insurance was an afterthought or it didn’t even hit the radar. We see an increasing number of returns with the surcharge included due to insufficient cover. Timing is key and it seems even some insurance companies aren’t getting the timing right when advising taxpayers when it’s best to switch to non-expat cover.

It’s incredibly easy for the ATO to audit this area so don’t get caught out!

What about the Medicare Levy exemption?

If you are an expat in Australia without access to Medicare you know the pain of form filling when telling the ATO you don’t have access to the Medicare system. In 2018 the requirement to provide a copy of your visa returned so you can claim the exemption, but you will forget the pain when you are spending that refund.

Default assessments and debt collection

Don’t get caught out if you’ve been gone from Oz for a while without lodging annual returns or lodging a final return before you left. The time is nigh to get caught. The ATO has greater access to information than ever before with the new Common Reporting Standard and information sharing on the rise among governments around the globe.

Did you know there can be an administrative penalty of 75-95 percent in addition to the tax due if you are non-compliant and the ATO get to you first!

The introduction of credit reporting in Australia landed like a soft whisper in the era of declining house values and reduced consumer spending but the anxiety brought on by referral to a debt collection agency for liabilities as low as $500 is still quite unsettling. The ATO outsources to agents whose threats pack a lot more punch these days.

With the ATO sending us text messages now it’s sometimes hard to tell the crooks from the taxman as our clients saw an increasing number of phishing attacks in 2018.

In 2019 tax remains the Federal Government’s key tool to encourage the economy

The ATO will continue to improve the usability of its systems

MyGov is fast becoming the one stop shop for taxpayers without a registered tax agent. With Single Touch Payroll increasing the ATO’s access to real-time data we can only expect that the return for the individual with straight-forward tax affairs will get even easier through myTax. Customer Service will then become the differentiator between tax agents.

As tax agents, we are very interested in ATO online (replacement of the tax agent portal) as it is just one of the steps that will make it easier for us to extract data from the ATO to speed up the communication process with our clients.

You may have been the recipient of Division 293 letter or even a ‘you have an outstanding debt’ letter in the past and wondered what it was about or even what action was required. The ATO rewrote the Division 293 cover letter and it’s now heaps easier to digest. Maybe this will lead to a reduction in overdue tax debt letters.

Perhaps in 2019 the ATO will start writing what tax the debt is in relation to on the cover letters.

Tinkering with tax positions or real reform?

Clarification of residency rules

Tax professionals have been waiting for residency to get some time in the spotlight and the Board of Taxation’s review of the Australian position has been welcomed. That being said, I doubt we will see new legislation until 2020 or after.

Removal of main residence exemption for non-residents

The Government has proposed legislation to remove the capital gains exemption for the main residence if you sell your home while living overseas.

The end of worldwide taxation for non-resident US citizens?

I like to keep it simple. You earn income you pay tax. The more complicated it gets, the harder it is to achieve efficient compliance. I appreciate the relative straight-forward nature of Australian tax in comparison to my birth country, USA.

There are only a couple of countries that continue to require their non-residents report their worldwide income in perpetuity (even through shutdowns) and every so often a bill is introduced that suggests an end to an activity that makes January a headache for countless American expats.

I’ll be watching this one to see if it gains any traction.

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