With the recent closure of the Cathay Pacific bases in Australia, resulting in nearly 120 pilot redundancies, some are considering returning to Hong Kong to continue their flying careers.
A job may be better than no job, however working in HK needs to be considered very carefully from a tax perspective. If you leave your spouse and/or children here – even if you do not set foot in Australia again – you will generally be treated as continuing to be Australian resident. Also as there is no double tax agreement between Australia and HK, there is no residency tie-breaker clause to potentially help you.
IMPORTANT: Failure to take your family with you means your worldwide earnings will be taxed here irrespective of whether you remit the funds to Australia.
There have been multiple cases over the years where global execs and “commuters” have been caught by this, resulting in back taxes for multiple years, fines and penalties. As this is a recurring topic, you might like to check my previous blogs on “are you really a non-resident” and “the increased tracking data matching powers of the ATO”. Add to that the new (almost legislated) rules regarding residency, and the chances of being seen as non-resident are slim. You may be able to find an unscrupulous tax agent who will lodge your return as a non-resident, but you won’t see them for dust when the ATO come knocking!
If you find yourself considering the move to Hong Kong, and leaving your loved ones here, this blog is not going to make you happy but it is an important reality check. In summary, budget to only have in your hand 50% of your earnings after travel and tax.
The following summarises the main points for someone who is deemed an Australian tax resident but is employed overseas.
Salary – all amounts you are paid in Hong Kong which look or smell like salary will be taxable in Australia. This includes normal earnings, overtime, housing allowances, school fees and any other benefits. As the ATO will not know about your change of circumstances until you lodge your 2022 tax return in May 2023, YOU MUST BE DISCIPLINED AND PUT THE AUSSIE TAX TO ONE SIDE EVERY SINGLE MONTH.
In May 2023 you will be paying tax on earnings in 2021/2 and you will start paying instalments for 2022/3. It will feel like you are paying two years of tax in one go. This is when the wheels fall off, it will make you cry, turn to drink and possibly get divorced, yet most people don’t plan for it.
You will get a credit for tax paid in HK which is good news, therefore aim to put at least 30% of your gross to one side every month and do not touch it. If you have an offset account against a mortgage the cash can always be put to good use there.
Travel – travel to and from Hong Kong is not deductible and neither is the rent of a pad in HK. This is a private expense as it is your choice not to live near your place of work.
Provident fund – foreign pension funds are tricky. The ATO has a narrow definition of pension fund and unfortunately the MPF does not pass the test. It is therefore seen as a foreign trust and, as an Australian tax resident, you will be taxed on the earnings each year as if it were a trust. To add further insult when you cash out you get taxed on the gains made.
Foreign pension payments – if you leave your pension in HK and receive a foreign pension the pension will be taxable each year. Only Australian pensions are exempt from tax. If you take a lump sum the earnings/growth will be taxed on receipt.
Australian superfunds – there are savings to be made here. You will still be able to make personal deductible contributions to your Australian superfund or SMSF and save tax which is good. Remember the end game is to reach retirement with the house paid off and as much as possible in an Australian superfund.
Private Heath Cover – to avoid the medicare surcharge you will need Australian private health cover in place for yourself and all your dependants. This is the case even if you have overseas cover.
Sorry not to be the bearer of glad tidings, but it is best to be forewarned. Most important is to be aware of the timing of tax payments and to understand that you will feel relatively rich until May 23 and then you will feel totally impoverished unless you have saved enough.
I am sure that over the next few months there will be other questions and queries – feel free to put them below or email for assistance.
Lindsay 0413 952180