Tax traps for Aussies working in Singapore

Singapore has become a popular international tax haven.

Singapore is a popular destination for Australians wanting to work overseas, but here’s the lowdown on the tax implications.

With insights from Liam Branagan, the manager of global mobility services and tax at KPMG

1.  Tax resident or not?

An Australian is considered to be a resident in Singapore for tax purposes if he or she spends more than 183 days in the country in a year.  There are other administrative concessions available subject to conditions.

However, an Australian who departs to Singapore will likely remain a resident of Australia, unless they intend to remain in Singapore on a permanent basis (generally, longer than two years).

Under the tax treaty, Australians who are considered residents of both countries will generally then be considered resident only of:

-          The country in which they have a permanent place of abode available to them

-          The country in which they have their habitual abode, or

-          The country in which their personal and economic ties are closer, depending on their circumstances.

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When an Australian ceases employment in Singapore, the employer must file a tax clearance and report income earned for the year-to-date (that is, file an exit tax return). In this exit tax return, a departing Australian will also be taxed on the full amount of the gain derived from the right or benefit to acquire shares that may have been granted to them in relation to the Singapore employment.

2.       Salary packaging

While Singapore does have an attractively low personal tax rate, it does not have many items that are worth salary packaging.

Some items that attract concessional tax treatment include:

-          Home leave packages

-          Medical expenses

3.          Retirement plans

 The mandatory pension scheme in Singapore is not applicable for Australians.

Singapore tax regime at a glance

Tax treaty between Australia and Singapore?

Yes

Singapore tax year ends

31 December

Singapore tax rates for tax residents for Year of Assessment 2012 to 2016

Taxable income (SGD)

 

From

To

Tax rate

0

20,000

0 per cent

20,001

30,000

2.0 per cent

30,001

40,000

3.5 per cent

40,001

80,000

7.0 per cent

80,001

120,000

11.5 per cent

120,001

160,000

15.0 per cent

160,001

200,000

17.0 per cent

200,001

320,000

18.0 per cent

320,001

Unlimited

20.0 per cent

Relocation costs

If an employer pays relocation costs they are not taxable.

Housing allowances

Housing allowances are taxable.

Retirement/ pension contributions

Contributions made by the employer to foreign funds are taxable.

Withholding tax

Not applicable except for when leaving Singapore for the final time, at which point earnings one month prior to departure are withheld to cover any tax payable on the exit tax return.

Australian tax considerations for individuals continuing to be Australian residents

Australians who live in Singapore permanently enjoy much lower tax rates than those that apply in Australia. So where a person remains an Australian tax resident (for example, through short stays in Singapore, or where the Australian returns to Australia to visit regularly), they will generally continue to pay tax at Australian rates on worldwide income.

In addition, certain types of income earned in Singapore are exempt from tax, for instance capital gains. But anyone who remains an Australian resident for tax purposes will pay tax on any capital gains earned in Australia.

Someone who is a non-resident of Australia for tax purposes will only be subject to tax on Australian-sourced income (i.e., for employment income, income that relates to services performed in Australia). Accordingly, the following comments relate to items provided as a resident of Australia (i.e,. an individual subject to tax on worldwide income).

Housing allowance

Taxable in the hands of the individual unless considered a living away from home allowance (LAFHA).

Where considered a LAFHA, the allowance may either be subject to Fringe Benefits Tax (FBT) or exempt, depending on the individual’s personal circumstances.

Relocation costs

If this is paid as an allowance it will be subject to tax in Australia. If the employee pays this cost it’s exempt from GST.

Superannuation contributions

Australians are generally able to continue to pay into a local Australian super fund. However, contributions could be subject to tax in Singapore. Individuals who retain a self-managed superannuation fund should receive professional advice before departing Australia on assignment to ensure the fund remains a complying fund.

Main residence

If you continue to maintain your main residence in Australia while working in Singapore, it’s unlikely the main residence exemption will be jeopardised, unless the property is rented out for more than six consecutive years.

Capital gains tax event on ceasing to become a resident

If youcontinue to be an Australian resident, capital gains tax (CGT) rules will continue to apply to gains or losses earned on assets.

An individual who ceases to be an Australian resident will be considered to have disposed of any CGT assets (apart from any assets whose value is mostly made up of Australian real property) for their market value at the day they become non-resident. In this case, there will be no further capital gains or losses realised when the assets are eventually sold as non-residents.

If you don’t want to crystallise the capital gain when leaving Australia to live in Singapore, you may elect for deemed disposal not to apply, however will be required to report any capital gain or loss on the sale of those assets after departure.

An Australian in Singapore

Here is an example of how much tax an Australian tax resident might pay

Assumed facts:

  • Australian employee sent on work assignment to Singapore for two-plus years
  • Single employee (no partner or children)
  • Singaporean employer pays employee a salary of AUD$250,000
  • Exchange rate of AU$1.00 = 1.08 SGD
  • Australian tax rates used are for the income year ended 30 June 2015
  • Singapore tax rates used are for the income year ended 2014.

If the individual continues to be a tax resident of Australia (Australian resident)

If the individual ceases to be a tax resident of Australia (non-resident)

Singaporean tax position (AUD & SGD) amounts shown for comparison only)

AUD

SGD

Gross income

250,000

270,000

Less: Singapore basic tax relief

926

1000

Taxable income

269,000

Income tax  payable

30,713

33,170

Australian tax position

AUD

Taxable income

250,000

Income tax charged

87,447

Medicare levy[1]

5000

Foreign income tax offset

(30,713)

Net tax payable

61,734

Total Tax Payable

AUD

Australia

61,734

Singapore

30,713

92,447

Singaporean tax position (AUD & SGD) amounts shown for comparison only)

AUD

SGD

Gross income

250,000

270,000

Less: Singapore basic  tax relief

926

1000

Taxable income

269,000

Income tax payable

30,713

33,170

Australian tax position

AUD

Taxable income

0

Income tax charged

0

Medicare levy

0

Foreign income tax offset

0

Net tax payable

0

Total Tax Payable

AUD

Australia

0

 Singapore

30,713

30,713



[1] Medicare levy rate for the income year ended 30 June 2015 is 2%. Calculation based on the assumption the employee holds the appropriate level of private patient hospital cover for the year. 


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