Aussie tax on HK income

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  1. #1

    Aussie tax on HK income

    hi guys,

    i'm an aussie about to start work in HK. i old an australian passport but working for a HK company earning $HKD. i was wondering if anyone knows if i have to pay australian tax on this hong kong income?

    my research and accountant says no, however i have to declare my hk income on my aussie tax return and as a result i may have to pay a higher marginal rate of tax on any aussie income declared (e.g. from investments.). thanks in advance.


  2. #2

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    Hi Aussie,

    I'm in a similar situation and have done a fair bit of research into this, so you're in luck.

    Before I get started this should not be construed as advise in any form and you should consult appropriate experts before taking any action yourself. Yada, yada. Hopefully that should keep the lawyers at bay

    So as far as I'm aware the situation is like this:

    - if you relocate to Hong Kong indefinitely (that means, not for a defined period of time) then you're considered non-resident for tax purposes. So if you're here on a fixed contract, and will return within a fixed period of time you still have to pay income tax in Australia. If you're here on a continuing employement basis then you shouldn't have to pay income tax in Australia. The tax department actually base your residence on your 'intention' so it can be a pretty gray area legally.

    In one case a person moved overseas on a 2 year contract, but then got sick and had to return home. It was his intention to renew the contract after the 2 years, and only because he fell sick did he return, so he was found to be non-resident.

    It's really up to the ATO, and they take lots of things into account, like whether you have a family here, send your kids to school, buy property in HK etc. In general however I think if you stay longer than 2 years in Hong Kong then they'll leave you alone.

    Another note, if you jump from country to country e.g. 6 month or 1 year contracts, then you have to pay tax in Oz, the ATO gives this as a specific example since you don't reside indefinitely in any one place (ie. your stay is only temporary).

    - On the topic of investments in Oz, etc. if you are non-resident you DO NOT have to pay capital gains tax on investments, even if they are in Australia! That means if you buy Australian shares and sell them at a profit, you don't pay capital gains tax! Nor do you have to pay tax on dividends (god I love HK!). Although you'll lose your imputation credits on Oz dividends. When you return to Australia your stock will be valued at the market price. Only capital gains above that price will be taxed. e.g. buy stock for $10, move to HK, return several years later, stock is now $20. Several years later you sell for $50. You only pay capital gains tax on the gains after you returned home, which is $50 - $20 = $30.

    - Property is more tricky. This is specifically excluded, so you will pay CGT on this, even if you're non-resident in Australia. Plus you'll cop land tax if you have enough of it. Given that negative gearing is useless for you here, as is depreciation, it really makes buying property back in Oz extremely unattractive. The after-tax yields are similar to stock for an Australia who can make use of negative gearing and depreciation, but for us the yields are awefull.

    That said, if you like property HK seems like a great place to buy. Yields can get up to 5%, council rates are low, and mortgage interest rates are only 4.85% Plus you can deduct the interest off your salary if it's your principle place of residence!! Basically it ends up cheaper buying than renting!

    One thing worth mentioning, it's worth buying one property in Oz (if you havn't left yet) because you'll get the first home owners grant and don't have to pay stamp duty. But you'll have to live in it for 6 months for this to apply. So if you're already in HK then you're out of luck. Better to wait till you return to home before dipping into the Oz property market.

    The interesting thing is, if a place is your principle place of residence, and you move overseas / interstate for a job, then for up to 6 years you can rent it out and still claim it as your principle place of residence, which means NO CGT!!!

    For this reason I bought a place in Oz before I left, lived in it for a year and then moved to HK. It works pretty well as an investment, but I wouldn't buy a second one. Once you factor in stamp duty, no FHOG and CGT it doesn't really make sense.

    Another thing worth mentioning, because interest rates in Hong Kong are so low, the premium on options and futures are extremely low too, so it often works out much better to use futures/options to get gearing than via a margin loan.

    Best of luck!


  3. #3

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    Quote Originally Posted by aussiebiscuit:
    my research and accountant says no, however i have to declare my hk income on my aussie tax return and as a result i may have to pay a higher marginal rate of tax on any aussie income declared (e.g. from investments.). thanks in advance.
    BTW I think what you're mentioning applies if you're tax-resident in Australia. In that case the tax treaty will get you out of paying tax on your Hong Kong income, but you still have to pay tax on Australian sourced income like dividends on Australian shares.

    However if you're non-resident in Australia for tax purposes (ie. in HK indefinitely), then you don't have to pay tax on your dividends, even if it is from Australian stock. It's really worth ensuring that you're non-resident here.