Bangkok Post Net Worth Column.

Byline: Andrew Leppard

Nov. 7--In this week's article, we look at the investment advantages alongside the tax implications for Australian investors who take out investment bonds and savings plans in financial jurisdictions outside their home country, particularly when they are non-resident for tax purposes in Australia.

There are three main federal taxes in Australia: income tax, fringe benefit tax, and capital gains tax. Each state in Australia also has its own taxation system, so state taxes may also be applicable; for example, in New South Wales, land tax may need to be paid.

Residents of Australia are subject to income tax on their worldwide income while non-residents are taxed in Australia on their Australian-sourced income, and may be liable for withholding tax and provisional tax. Capital gains tax (CGT) is incurred on disposal of an asset, and that includes encashing an offshore investment. Note that there have been recent changes introduced to CGT, so consult your accountant if you have any issues here.

Only if a person is resident in Australia for tax purposes, will a policy or investment issued by a non-Australian insurer be taxed under the Foreign Investment Funds and Life Assurance Policies Regulations, known as the FIF regime. Under FIF, a foreign life assurance policy is one that includes an investment component.

There is no tax relief available for Australian residents investing offshore. However, there are certain exemptions for residents. First, where the value of an interest in a foreign life policy does not exceed A$50,000; second, under FIF rules, if a person has resided in Australia for less than four years, he or she is deemed to be an exempt visitor.

Reading about the taxation issues, you may wonder why any Australian who intends not to evade tax would invest offshore at all. Indeed, it would seem the FIF regulations were put in place to discourage capital outflow from the country, and Australian expatriates who intend to become "residents" again in the future need a good reason to hold investments outside their own country.