New Tax Residency Rules - a delayed introduction? - December 31, 2021
In very general terms, we regard the current LNP Federal Government as being "expat unfriendly" - particularly courtesy of legislation that removed the capital gains main residence exemption from Australian citizens and permanent residents living overseas in July 2020. Effectively discriminating against citizens and permanent residents internationally mobile compared to those who are nationally mobile.
Another "unfriendly" move was to announce a change in tax residency rules which would effectively make it more difficult for Australians to become non-resident for Australian tax purposes and also easier to become tax resident in Australia if they stayed in Australia for longer than a mere 45 days in a financial year. The latter has been the subject of complaint to the government by numerous Australian Chambers of Commerce overseas, with no sign yet of a willingness to compromise by the Government. Regardless, Australian expat organisations overseas should be considering very carefully their level of ongoing cooperation with the Australian Government on any level given the parade of anti-expat tax changes over the last decade.
One positive piece of news, if one could describe it as that, is the prospect of some delay affecting the introduction of new tax residency legislation - and, unfortunately, a raft of rather more positive changes with respect to superannuation. As we have mentioned elsewhere on the website, we are yet to see draft legislation with respect to the new tax residency changes and there are now very few sitting days before the proposed Federal Budget date of March 29, 2022 and the Parliament may not sit after that until the next election - which is due before July 2022, and will most likely occur in March or May of next year. That raises the possibility that any changes made to tax residency rules may not come into effect until 1 July, 2023.
With Interest rates still at near historic lows, expats should consider re-financing their mortgages - December 9, 2021
We often find that Australian expats, particular long term expats, have very uncompetitive mortgage arrangements - usually as a consequence of inertia and the perceived, rather than real, difficulty attaching to the re-financing of their mortgages. It can be more difficult to re-finance than arrange an original mortgage, largely because of the reduced number of lenders, but re-financing is rarely problematic.
Current mortgage interest rates remain at near historic lows, see the table below showing indicative interest rates, but most commentators and domestic banks expect a rise in interest rates by the end of 2022. Please feel to make an Inquiry to our mortgage broker and note that no cost or commitment attaches; the lender pays all fees in Australia.
|Type of Mortgage||Interest Rate|
|Standard Variable Rate - Owner Occupied (P & I )||From 2.19% p.a.|
|Standard Variable Rate - Investment (P & I)||From 3.69% p.a.|
|Fixed Rate Home Loan - Investment (P & I) - 5 years||From 2.49% p.a.|
Australia's residential housing market continues to lose steam – December 1, 2021
There are a number of indications, including moderating auction clearance rates, which suggest that Australia's significant residential housing boom is continuing to lose momentum.. There are a considerable number of headwinds that make substantial further gains unlikely, including diminishing affordability, relatively new credit limitations and the prospect of future interest rate rises that many borrowers would find it hard to accommodate.
Most major banks would appear to be taking the view that most markets will see some moderate gains during the course of 2022, followed by the possibility of a decline in prices in 2023 after a predicted rise in interest rates. Much can happen, and this is a mult-ifactor market, but affordability is so stretched in many parts of the market so there would appear to be almost physical constraints applying.
There may however be more room to move in some of the smaller capital city markets, as the chart below shows - particularly Brisbane, Adelaide and Perth, although the latter is cooling at the moment.
More people working remotely – November 9, 2021
With Australia at last opening up, it won't surprise many people that we are receiving many more inquiries about the tax impact of people working internationally on a remote basis. This includes both Australians proceeding overseas with the intention of continuing to work for their same employer in Australia, and Australians returning home who still continue to work for overseas employers.
These arrangements can be wonderfully flexible, but not necessarily simple when the tax aspects are considered. In short, you are typically taxable in the country in which you perform your duties, regardless of whether you are "paid" in Australia, or elsewhere. It really pays to obtain some professional advice before entering into these arrangements - as the area is complex, and the wrong decision taken early can take years to unravel. We provide more details on our remote working page.
New Smartraveller Advice - October 28, 2021
Almost a year ago, the Australian Government dispensed with providing individual country advice and effectively declared the rest of the world a "do not travel" zone.
However, as from October 28, the Government has resumed individual country travel advice - in advance of the resumption of more general travel into an outside of Australia. Go to the Smartraveller website for detailed country assessments or view our World Travel Advice Map.
Government Urged to Change Proposed New Tax Residency Rules – October 16, 2021
Australian business groups, particularly in Hong Kong, are actively lobbying the Federal government to change aspects of the proposed new tax residency rules, which we have summarised in detail on this site, because of significant negative tax consequences. Their concerns center largely around the prospect of Australian expatriates being considered Australian tax residents if they spend 45 days or more in the country in one year - and the prospect of double taxation if they are resident in countries (or regions) such as Hong Kong, where there is no double tax agreement.
As we mentioned earlier this month, see below, there have been no public announcements, such as draft legislation, regarding the new rules which are supposedly to be in place by 1 July 2022.
Expats are reminded that it was the LNP government that – for no clear reason - doggedly pursued the recent adverse, discriminatory changes to capital gains tax on main residences, and indeed back in 2012 remove the capital gains tax discount from non-residents. The Government's clear view is that expats don't vote and therefore have "no leverage". However, the Government is however under pressure on multiple fronts, given its inability to manage the Covid vaccination rollout and Net Zero, with an election pending in May 2022- so the "pips might be starting to squeak" and consistent pressure may bear fruit.
New Tax Residency Tests - A quick summary of where we are - October 12, 2021
|No draft legislation or proposed start date as yet.|
|No transitional rules for individuals qualifying as non-residents under current rules|
|Counting days in Australia will be critical under the 183 day test.|
|The issues will be primarily in the ceasing residency test; the commencing residency test is not a radical departure from the existing position.|
|The Board recommendation that where an Australian is treated as a resident of another country under one of Australia’s comprehensive tax treaty arrangements the individual should also be treated as a ‘non-resident’ for domestic tax law purposes should be applauded and will simplify many issues going forward, if enacted.|
||The concept of "adhesive residency" means that the longer an individual is a tax resident the more difficult it is to cease residency. Clearly it will be more difficult for long term residents to break Australian tax residency and a number of mismatches will occur - for example, some members of a family may break residency, while others remain resident.|
Australian Mortgages - Additional Controls likely to be introduced - September 28, 2021
Following comments made by the Federal Treasurer in late September, 2021 we expect that additional controls which will shortly be introduced on home lending. Apart from the surge in house prices over the last 18 months, the regulators have become increasingly concerned about the general level of indebtedness.
The expectation is that controls will focus on debt to income ratios - perhaps limiting debt to six times an applicant's household income. Whether this will directly impact expat mortgage lending is difficult to foresee at this stage, but these type of changes have previously resulted in "stoppages", while clarity is sought in terms of how the changes impact expats. They have also previously resulted in financing and price surges as individuals seek to accelerate their purchasing to avoid the limitations.
Foreign Transfers – Supporting Documentation – September 24, 2021
Whenever we have discussed making foreign currency transfers into or out of Australia we have focused on the need for all individuals and entities to maintain appropriate documentation regarding the source of those funds. That is against the background of regular approaches being made to individuals by the ATO, often based on Austrac information and sometimes months or years after the transfer, seeking to confirm the source of funds.
That position now needs to be stressed further given a recent Taxpayer Alert (TA 2021/2) - Disguising undeclared foreign income as gifts or loans from related overseas entities. The main ATO focus is on the following behaviour:
"....the arrangements with which this Alert is concerned are ones where taxpayers are aware of their residency status, as well as the tax implications that flow from it, but attempt to avoid or evade tax on their foreign assessable income by concealing the character of funds upon their repatriation to Australia by disguising the funds received as a gift, or a loan, from a related overseas entity."
The alert specifically mentions that "genuine" gifts or loans are not the ATO's focus and indicates that they generally have the following characteristics:
- the characterisation of the transaction as a gift or loan is supported by appropriate documentation
- the parties' behaviour is consistent with that characterisation, and
- the monies provided are sourced from funds genuinely independent of the taxpayer.
In terms of what supporting documentation is required for a gift or loan, the ATO indicates as follows::
"Appropriate documentation for a genuine gift will depend on the size of the gift and whether the nature of the relationship is one where gifts might be made in the ordinary course of that relationship. For larger gifts or where there is an atypical relationship between the donor and donee, this might require a contemporaneous Deed of Gift. We would also expect there to be evidence showing the donor's capacity to make the gift from their own resources as well as financial records reflecting the donor's transfer.
Appropriate documentation for a genuine loan would typically include a properly documented loan agreement that evidences the parties to the loan, its terms and relevant conditions. We would also expect there to be financial records showing the advance of funds and repayments of principal and interest."
Retiring into Malaysia? Perhaps time to think again – September 8, 2021
For Australian and other expats looking to retire into Asia, Malaysia has previously been one of the more attractive options - with a well structured foreign retiree program called "Malaysia My Second Home" (MM2H).
However, that programme was frozen in July 2020 on the basis that that it would be reassessed, and only recently has the Malaysian Government announced a reactivation in October 2021, but with significantly increased eligibility criteria and an announced intention to focus on "wealthier foreigners". See the table below for more details.
These changes are entirely within the Government's prerogative, but our major issue is that the new criteria are apparently going to be applied to existing visa holders. So, for example, after a period of one year's grace, existing visa holders will apparently need to demonstrate that they have monthly available income of RM40,000, rather than the RM10,000 required previously. That's a 400% increase in the minimum income required, and the fixed deposit that needs to be paid into a Malaysia and bank has increased in some cases from RM150,000 to RM1,000,000 - a near 700% increase.
If this news is correct, and we would dispute whether Malaysia is attractive enough to compete on the new criteria with other destinations, we regard it as unethical for the Government to apply these obligations to existing holders. They should be "grandfathered" and either left to continue on until the end of their visa, then either meeting the new requirements or leaving the country. Either way, retiring into a country requires trust and stability in the local Government, and that no longer exists in Malaysia.
We can no longer recommend Malaysia as a retirement option and indeed we project a high probability that the new rules will fail, and be subject to reversal/review with 12 to 24 months. Even should that be the case Malaysia has done irreparable damage to its damage as a retiree destination, and perhaps intentionally.
High asset prices everywhere, where to invest? - September 7, 2021
As we have described previously, there has been a tremendous run up in most asset classes in Australia - and indeed in most parts of the western developed world - reflecting historically low interest rates. The table and charts below illustrate astonishing increases in capital city house prices over the last 12 months, without exception, and indeed for the first time in living memory these sorts of prices have also extended to larger regional towns.
There is only just now the impression that price rises are topping out, with affordability stretched at almost every point in the price scale, and justifiable concerns around what would happen if inflation were to return and interest rates (perhaps dramatically) increase.
The only thing that we can perhaps stress in relation to house prices is that it supports the contention that we've had for well over a decade that Australian expatriates should always maintain, unless there is a clear intention to remain overseas permanently, some exposure to the residential property market in Australia. This is both as a hedge against price increases such as those we have seen lately and also to adverse foreign exchange movements.
In terms of the Australian equity market, the market has bounced back nearly 50% from the plummet which initially followed the beginning of the Covid pandemic in March 2020. Perhaps more interestingly however, the market is only up just under 10% on the market high that preceded the market correction in March and, if you remember, the ASX had just recovered to pre GFC index levels - taking nearly a decade.
So, there is an argument that says that the ASX is not nearly as stretched as the property market. However, although on almost every metric it is not as stretched as a US market, it still mirrors movement in that market very closely and is exposed to a major US correction.
Expats who are long on cash at the moment and worrying about re-entry at some stage should probably be focusing on the flexibility it provides, rather than whether it represents a lost opportunity.
Migration Approach needs a Thorough Review - August 8, 2021
Recent media reports suggest that nearly 15,000 permanent and temporary resident visas have been granted by the Federal Government since Australian borders were closed 15 months ago. These "business innovation" and "investment" visas typically require applicants to invest millions of dollars in personal or business assets in Australia, but have been very controversial in terms of their real value to the country.
More controversially, they seem to have allowed access to the country without the need for an exemption, whilst Australian expatriates have been unable for a variety of reasons to return home.
A relatively recent report Grattan Institute showed that the majority of Australians generally supported continuing migration, but the majority also thought that migration rates - currently reduced by virtue of the pandemic - were too high.
In these circumstances, why does the Government continually push migration even during a pandemic? Simply because it's an easy, lazy way to post economic growth.
We have significant doubts about the (net) value of innovation and business investment visas, compared to a focus on skilled, young professional migrants - a clear, economic rather than political, re-evaluation of Australia's whole migration apparatus is very much needed.
Australian residential housing: price forecasts 2021 and 2022 - July 26, 2021
NAB have recently revised upward their expectations for residential house prices in 2021, and slightly lowered their expectations in 2022.
The figures for 2021 are in any context very large, and we are not sure to what extent the recent lockdowns in Sydney, Melbourne and Adelaide will have impacted market sentiment going forward. We think these represent expectations at the upper end of the scale, but while almost nothing would surprise during the Covid pandemic, certainly affordability must be weighing very heavily on the market. Gravity will eventually prevail.
Super Fund Performance - June 16, 2021
For Australian expats wondering how their Australian superannuation funds have fared through the Covid pandemic, the answer is that most have shown very high levels of investment return - mirroring equity performances in Australia and worldwide.
The charts below list the best performing balanced funds over 1) the financial year to April 30 and 2) over the five year period to April 30, 2021. A number of funds, highlighted in blue, feature in both lists.
2021 Australian Federal Budget: Expatriate Impact - May 12, 2021
There were a number of tax and superannuation changes announced in yesterday's Federal Budget that have direct and indirect impacts on expatriates. We have provided a summary below and will follow-up in more detail when more information becomes available.
Tax Residency Rules
The Treasurer announced a "simplification" of individual tax residency rules, wherein individuals who are physically present in Australia for 183 days or more in any income year will be an Australian tax resident under the primary test, and those who don't meet this criteria will be subject to a secondary test.
The announcement reflects recommendations made by the Board of Taxation in 2019. As we mentioned at the time, these recommendations reflect similar changes made in the UK and much is going to depend upon the precise factors that will be utilised to determine residency. There does however appear to be a focus on the rules surrounding individuals becoming resident, rather than breaking residency - which is often the focus of advice for expatriates.
Regardless of the fact that little or no detail regarding the new residency rules was contained in the Budget papers (despite media reports to the contrary), they are destined to come into effect from 1 July 2021 - this year. Given the Government's previous disregard shown for expatriates - in terms of the implementation of CGT rules around main residences - expats shouldn't necessarily expect a balanced process.
Relaxing residency requirements for self-managed superannuation funds
The Government intends to relax the residency requirements for SMSFs and SAFs by extending the "safe harbour" for the central management and control test from 2 to 5 years for SMSFs and removing the active member test for both fund types. The changes are intended to take effect from 1 July, 2022. We are supportive of the changes but again the devil will be in the detail, and ascertaining whether the changes also provide more flexibility around, for example, establishing SMSF's whilst non-resident.
Reducing the eligibility age for downsizing contributions
Not necessarily of direct importance to expatriates, nonetheless the "downsizer contribution" can make it easier for expatriates to make substantial conbtributions to their super on returning to Australia, if they have retained a qualifying main residence in Australia. The downsizer contribution allows people to make a once off, non-concessional (post-tax) contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home.
The Government will reduce the eligibility age to make downsizer contributions into superannuation from 65 to 60 years of age from, "the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022."
What's happened to Australian expats who have returned home - November 14, 2020
Despite historically high levels of unemployment in Australia, a survey carried out by Advance suggest that about 60% of returning expats have either found new employment in Australia (32.4%), are now working remotely for their existing overseas employer (18%) or have been transferred to the Australia payroll of their employer (9.9%).
Conversely, around 40% are looking for a job, building their own business or pusuing investment opportunities, and they would have experienced profound changes on their return.
The media tend to focus on success stories and our experience has been that most Australian firms are parochial in their recruitment, at the best of times. Consequently, we think these figures are likely to underestimate the difficulties experienced by many expat families, and perhaps the quality of jobs acquired.
However, in the present environment, health and security trumps short term career issues and we are glad to have them safely home, if perhaps temporarily for some.