Three-country transaction creates tax issues
This week, Martha features the Pondstraddler Monthly Series, featuring letters from Royal Gazette readers.
This month's inquiry: “I'm a Bermudian living with my family in Australia for the past decade. We still have property in Bermuda that we are considering selling. We may send some of the funds to our only child living in the UK, or alternatively, bring the money into Australia. We realise that there might be implications in the tax structures (and a possible foreign tax credit) between the three countries of Australia, Bermuda, and the UK. Can you help clarify these issues?”
Caution: this is a general discussion relative to the variation of taxation rules in three countries and their applicability to our reader. Tax laws change without notice, nor will a general discussion address the specific complexities of individuals with multinational families and interests. Therefore — please note again that this discussion cannot be relied upon, and cannot be construed as specific individual tax advice. Individuals with these multinational multi-jurisdictional issues must seriously consult with internationally qualified professionally licensed accountants and attorneys experienced in these matters.
No one can afford to be out of tax compliance today with the complexities of various countries' tax codes, AML, OECD CRS, Fatca, Gatca reporting and filing requirements. Remember, under these reporting standards most countries now have implemented automatic exchange (with each other) of tax and financial account information about their residents and citizens.
The primary issues from this simple inquiry that we can discuss, in general, are: ascertaining residency, citizenship, domicile, income tax and/or gift liability for each country, Common Reporting Standards. We are also assuming that our reader's hold the property as joint tenants, and not in a trust, a holding company or the like. These structures further complicate matters.
Residency, citizenship and domicile
These categories generally determine where, when, and which country or countries the family will be subject to tax (income, gift, or estate), particularly when the family (individuals) have more than one citizenship, residence, and or have not declared a new domicile, etc.
Bermuda: neither the parents, nor the child are considered resident in Bermuda.
Australia: are the parents temporary, or permanent residents or citizens of Australia? The Australian Government Taxation Office states that you are a temporary resident if you:
• Hold a temporary visa granted under the Migration Act 1958.
• Are not an Australian resident within the meaning of the Social Security Act 1991
• Do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.
The Social Security Act 1991 defines an “Australian resident” as a person who resides in Australia and is an Australian citizen, the holder of a permanent visa or a protected special category visa holder.
This is different to the standards used to determine tax residency. You could be an Australian resident for tax purposes even if you're not an Australian citizen or permanent resident.
United Kingdom: are the parents also UK citizens? Was the UK their original domicile, and if so, are they now considered non-domiciliaries residing outside the UK? UK non-doms and UK domicilaries are taxed differently. Additionally, they may now instead be considered Australia domiciled negating UK domicile that will need to be addressed by their tax professional.
We will assume that the adult child is a UK resident.
Tax compliance and tax treaties
Income tax: Bermuda does not have an income tax regime, nor an income tax treaty with Australia or the UK, negating any foreign tax credit. Bermuda will charge a conveyance fee upon the sale of the Bermudian property, thereby reducing the capital gain amount, if any.
Australia: how will they be taxed? This depends upon who they are and how these readers are classified for Australian income tax purposes. A tax resident, temporary tax resident, citizen or foreign resident? The rules are not the same.
According to the Australian Government Taxation Office, permanent residents and citizens are taxed on their worldwide income and assets.
Thus, capital gains on overseas assets are generally taxed. For example, when you sell an overseas property, you must report the gain (sales price minus costs) in your tax return. AGTO also states that all assets you've acquired since tax on capital gains started (on September 20, 1985) are subject to CGT unless specifically excluded. I recommend that our readers verify this specific tax information with their international professional.
Gift tax: this tax may come into play depending upon the source of funds remitted to a UK resident. Both Bermuda and Australia have no gift tax.
United Kingdom — gifts to UK resident beneficiaries from a foreign individual. There, generally, appears to be no gift tax to the UK recipient of the gift, but any subsequent income earned on the gift must be self-declared. Complications arise, however, one being that the monetary gift is derived from overseas and not considered UK-situs property.
There can be many other unknown surprises — and I refer you again to the general disclosure above.
UK beneficiaries may be subject to reporting the gift from whom and from where the gift was made.
The Australian readers may also be subject to reporting on the proceeds, the transfers, and a general declaration of where they are tax residents under the OECD CRS requirements and other Australian Government (and international standards) mandated reporting on financial accounts.
Finally, we should not forget foreign exchange fees to convert Bermuda funds.
Our readers have work to do. In the short and long run, I cannot emphasise enough that this is a general discussion. Tax laws change without notice. Consult with international tax and legal professionals to get it right, first time around.
EY Worldwide Estate and Inheritance Tax Guide and Worldwide Personal Tax and Immigration Guide for all three countries: Bermuda, UK and Australia (https://tinyurl.com/y9vesb9d; https://tinyurl.com/y8bpap22)
UK Government Her Majesty's Revenue and Customs (https://www.gov.uk/guidance/deemed-domicile-rules)
Australian Government Taxation Office (https://goo.gl/zPz7Md)
OECD CRS Common Reporting Standards listing more than 97 countries including the three above (https://goo.gl/UpwMnY)
• Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Dual citizen: Bermudian/US. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Finance columnist to The Royal Gazette, Bermuda. Contact: email@example.com