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Commentary on Issues impacting Australian Expatriates

Australian Real Estate: Resilience Continues - December 1, 2020

The latest data from CoreLogic show that Australian real estate prices are continuing to prove resilient.

House prices rose in every capital city, including Melbourne, last month for the first time since the Covid 19 impact, but commentators believe - and we agree - that significant risks remains in the New Year as economic stimuli are withdrawn and stock levels recover.

A quick summary of what has happened to the ASX to the end of November - November 30, 2020

Just updating our regular earlier analysis of how Australian equities have performed in 2020.

A very strong performance by the local bourse in November has seen the ASX200 almost recover to levels seen at the beginning of the year, although still nearly 10% below the highs seen in February. Very signficant trade and relationship tensions with China impacted the market late in the month and these are likely to continue in the following months, and perhaps longer as Australia moves to reduce it's economic reliance on China in favour of more stable, less politicised markets.

Super Fund Performance - November 22, 2020

For Australian expats wondering how their Australian superannuation funds are faring, the better performing balanced funds are beginning to show positive returns on an annual basis. The funds were obviously impacted by the sharp drop in equity markets earlier this year because of Covid 19, but benefited to some degree from the rise in the US market, particularly large tech stocks, and diversification.

The charts below list the best performing balanced funds over one year and five years, and there are number of funds (highlighted in blue) that feature in both lists.

Retirement Income Review report – November 21, 2020

The Retirement Income Review report which was released on Friday, November 20, after having been with the Government since July. The Report was commissioned to provide a fact base on which to proceed with further policy developments in relation to retirement incomes, including superannuation and pensions.. The review was specifically precluded from making recommendations, obviously to provide the Government with as much manoeuvring room as possible.

There was little in the report of significance for expatriates, but we would flag the following issues:

The Review increases the likelihood of the government pausing or discontinuing plans to increase recurrent superannuation guarantee level beyond the current 9.5%. The Review takes the view that an increase in the SG is likely to reduce real-time wages and that any increase in the SG will likely accrue largely to higher income earners.

The Review is critical of the continuing large number of high-value superannuation funds in Australia - there are apparently more than 11,000 people with more than $5 million in superannuation savings, attracting a significant cost in terms of tax concessions. These are viewed as largely tax minimisation structures, excessive in terms of meeting retirement incomes, and it seems likely that further restrictions will come into place in terms of the tax treatment of high balance funds.

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 focuss on success stories and our experience has been that most Australian firms are parochial in their recriutment, 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.

Major changes in the Australian mortgage market – November 7, 2020

Expats should be aware of two major dynamics impacting the Australian mortgage market at the moment.

Firstly, and most will be aware of this, historically low interest rates are now available in the market - indeed, following this week's RBA market meeting, the major banks are now offering four year fixed rates as low as 1.89%.

Secondly, and less obviously, fixed rate loans are now substantially cheaper than variable-rate loans, as a result of cheap term financing now available to the banks from the RBA - see the chart below. Moving from variable to fixed rates can be attractive, but expats need to bear in mind that you are basically committed to your lender for the period of the loan, with substantial break costs involved with any exit. Additionally, the lenders will typically substantially limit the maximum amount of any extra repayments during the period of the loan. This is typically less of an issue for expats, where accelerating the repayment of loan is not always tax advantageous.

As we mention elsewhere, remember that expats do not have access to all Australian mortgages and lenders; more details are available on our Mortgage page.

Australian Property Insight - October 23, 2020

PEXA is an Australian electronic property exchange platform that processes about 20,000 sales a week and tracks mortgage and property re-financing changes. The online nature of the service provides it with an advantage when it comes to identifying property trends in almost real-time.

PEXA's first " Property and Mortgage Insights" report is a little low on detail, particularly in terms of the property markets outside NSW and Victoria, but they do provide interesting view of the current market and we have included some excerpts below. Bear in mind that the drop in median settled prices may be more a reflection of what parts of the market have been most impacted by Covid - in other words, turnover at the lower end of the market may have increased disproportionately.

A 14% fall in median settled property value in VIC and NSW in the first 9 months of 2020. The September quarter showed a small improvement in NSW property values, while Victoria declined by almost 5%.
In NSW, commercial median prices dropped by 14% from January 2020 to September 2020; although they have been stable since June 2020. This suggests that commercial properties are under (relatively) higher stress than residential .
A 72% year-on-year increase in re-financing at the peak of monthly refinance activity, June 2020 - with most captured by the major banks.
"Border closures will reduce net migration and housing demand. A fall in overseas student numbers will likely reduce demand for rental properties, especially around universities and in capital cities. As a large proportion of migration comes from students who remain in Australia after finishing their studies, the effect on the overall housing market could be quite long-lived."
For the first six months of 2020 total new property listings were only 0.7% below the first six months of 2019, but 13% below the same period average for 2017-2019.

Interest rates – "lower for longer" – October 18, 2020

A recent speech by the Governor of the Reserve Bank, Phil Lowe, has been seen as clearly indicating that interest rates will be further reduced at the next RBA meeting, and that there will be a continued easing of monetary policy over the medium term. The Governor also indicated that he saw rising asset prices as "constructive in the context of providing jobs".

That translates to a situation in which interest rates are likely to fall further, zero is within reach for deposit accounts - a situation which many Australians overseas will be familiar with - and the RBA's greater comfort with rising house prices. The latter also has to be seen in the context recent moves by the Government to make lending more accessible.

Consequently, in the absence of Australia falling off the financial cliff in the early part of 2021 as job support programs are peeled back, we may very likely see a significant increase in property investment. For Australians overseas that means two things - firstly, we again suggest that you look to review your current mortgage arrangements to ensure that they are competitive, and secondly, substantial falls in the local real estate market have become less likely. Note that the Australian dollar will likely weaken in response to these moves and that is clearly one of the RBA's objectives.

The 2020 Federal Budget - A "Non-Event" for Expats - October 7, 2102

As expected, the Federal Government announced a very expansionary budget to offset the economic impact of Covid 19. There were no elements of the Budget that had any specific impact on expatriates, except an announcement that self managed super funds may be able to increase the maximum number of members from 4 to 6 - potentially making it easier for expats to maintain a complying SMSF when they leave Australia.

The Budget included a bring forward of tax cuts originally scheduled over the next 3 to 4 years backdated to July 1, 2020 - and we have summarised impact of those tax cuts on the table below.

Taxable income
2017-2018
Tax Liability
2020-2021
Tax Liability ($)
Change in Tax ($)
Change in Tax (%)
40,000
4,947
3,887
-1,060
-21.4
60,000
12,147
9,987
-2,160
-17.8
80,000
19,147
16,987
-2,160
-11.3
100,000
26,632
24,187
-2,445
-9.2
120,000
34,432
31,687
-2,745
-8.0
140,000
42,232
39,667
-2,565
-6.1
160,000
50,032
47,467
-2,565
-5.1
180,000
57,832
55,267
-2,565
-4.4
200,000
67,232
64,667
-2,565
-3.8

The Australian Housing market - Alice in Wonderland continues - September 10, 2020

Long-term expatriates tend to shake their head in bemusement at the Australian property market, unsure as to whether it actually takes any notice of conventional economics. And so it seems to continue, you would have perhaps thought that in the middle of a global pandemic, with Australia projected to be in its first (significant) recession in 30 years and rising unemployment, that real estate prices - always thought to be overvalued in Australia - would have been badly impacted.

However, a combination of very low interest rates and a marked reduction in real estate listings - see the table below - have combined to result in the market seeing very little in the way of price reductions, apart from the apartment market in certain areas and Melbourne real estate generally, and a "recovery" is tipped for 2021. We are a little more sanguine - there is an unprecedented amount of government driven liquidity in the economy, courtesy largely of JobKeeper and, with unemployment rates inevitably rising, we think there are significant downside risks apparent in the second quarter of next year as the stimulus unwinds.

Australian Life Insurers refuse cover for Expatriates - September 8, 2020

At the current time it is our understanding that no Australian life Insurer will provide individual life insurance cover to expatriates. In the past, Insurers have declined to provide cover where expatriates have been resident in countries where the Australian government has advised citizens “not to travel or reside”; referred to as DFAT level 4. Now that all countries outside Australia now fall into DFAT Level 4 Insurers have taken the approach of refusing cover for anyone outside Australia.

More remarkably, cover is being refused if there is any intention expressed to travel outside Australia, whether permanently, for business purposes or for tourism - even though Covid 19 related illnesses would be specifically excluded in any cover. Talk to your employer if you are going on a work assignment just to ensure you have appropriate levels of cover and, if you are already outside Australia, your only available option may be to arrange cover through a local Insurer. Whether this is a real or good option will depend on your country of residency.

Time to consider tax residency again - August 11, 2020

During May, in the commentary below, we discussed how as a consequence of the Covid 19 pandemic the ATO had indicated that it would take a more flexible approach to the issue of tax residency as it affected people who needed to stay in Australia, or were effectively trapped because of travel restrictions.

Now that it is becoming clear that Covid 19 is not going to be temporary phenomena, and travel restrictions may not lift until early next year, the ATO is beginning to signal that this flexibility is on the wane, and individual should begin to normalise their tax arrangements. Consequently, we would advise anyone to might be significantly affected by being considered resident for Australian tax purposes, to seek individual professional advice regarding their position.

"Tracksuit man and Lululemon lady" - Career advice for returning expatriates - July 15, 2020

The Australian press today contained an article quoting an executive recruiter who warned that returning expatriates need to manage their salary expectations or risk becoming "tracksuit man" or "Lululemon lady" - "Tracksuit man" in this situation is a man sitting in a coffee shop thumbing through the Australian Financial Review because they haven't got a job. The recruiter also went on to add that, "The trouble is, though, not all of those candidates fit back into this market. They've got giant egos, expectations about either their capabilities or the economics that don't match the local market."

We don't necessarily like the language in which the opinion is expressed, but recruiters should provide candidates with honest advice and it is indeed important for returning expatriates to be realistic about their job options in what is a very tight market. We also don't agree about the reference to egos - obviously this can be an individual problem, we've all seen that, but we think the more endemic problem is the parochial nature of the Australian labour market and its participants, at all levels, including recruiters and their clients.

However, most returning expats have little if any leverage and need to be intensely practical - and that includes considering other options, if their financial position allows, to alternatively spend their time improving professional qualifications or initiating start-ups.

Meanwhile, maintaining networks is obviously important, but expats should try and ensure that any contact with recruiters is limited to those with some direct experience of being an expatriate themselves - it at least suggests they will have an open mind regarding the value of an expatriate's work experience.

Australian Government Travel Advice regarding China - July 7, 2020

The Australian Government continues to recommend against travel to China, but has released a new travel advice:

China will not allow most foreigners to enter China due to COVID-19. Direct flights between China and Australia have significantly reduced. If despite our advice you travel to China, you’ll be subject to 14 days mandatory quarantine. Quarantine requirements may change at short notice. If you’re already in China, and wish to return to Australia, we recommend you do so as soon as possible by commercial means. Authorities have detained foreigners because they're 'endangering national security'. Australians may also be at risk of arbitrary detention.

https://www.smartraveller.gov.au/destinations/asia/china

With Interest rates at historic lows, many expats should consider re-financing their mortgages - June 21, 2020

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.

With current mortgage rates at historic lows - see the table below showing indicative interest rates - many expats are missing an opportunity to make substantial savings. 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 )
2.79% p.a.
Standard Variable Rate - Investment (P & I)
3.27% p.a.
Fixed Rate Home Loan - Investment (P & I) - 5 years
2.69% p.a.

Super Fund Performance - Covid 19 Impact - May 11, 2020

Recent data from Superratings has provided some indication of the damage wrought by Covid 19, and particularly the impact on equity markets earlier this year, on Australian super fund returns.

Most balanced super funds, and they represent the majority of funds, have a significant investment in the equity market(s) and this has seen most of them post-negative returns financial year-to-date. The chart below shows the performance of some of the leading balanced funds over the last 5 years - with investment returns ranging between -3% and -6.5%.

 

Covid-19 and Tax Residency - ATO flagging some welcome flexibility – May 5, 2020

The ATO has indicated that it may take a flexible approach to individuals who need to stay in Australia because of Covid 19 restrictions, when it comes to assessing their tax residency status.

Some comments in relation to individuals returning to Australia as a result of Covid 19 are included on the following pages and include the following FAQ;

  Question: Will my tax residency for tax purposes change as a result of me returning to Australia due to COVID-19?
 

Answer: Whether you are a resident for tax purposes in Australia is a question of fact that requires consideration of your circumstances.

If you are here temporarily for some weeks or months because of COVID-19 then you will not become an Australian resident for tax purposes as long as you:

  • usually live overseas permanently
  • intend to return there as soon as you are able to.

However the tax residency issue may be more complicated if you:

  • end up staying in Australia for a lengthy period
  • do not plan to return to your country of residency when you are able to do so.

We appreciate that there will be unique situations with a range of potential tax outcomes. We will update and may revise this advice progressively as events unfold.

Additionally the Commissioner of taxation recently issued a statement to the tax profession which included the following comment:

"Also, if coping with COVID-19 is causing theoretical tax issues for you or for your clients, let us help. You don’t need to agonise over academic, technical arguments: contact us, and we’ll try our best to give pragmatic, practical advice. We’ve already done this on a range of issues, from central management and control, to SMSF residency issues, to expat tax issues."

In summary, much will obviously depend upon individual circumstances, but the ATO at least flagging that they intend to approach particular situations in a flexible and pragmatic fashion.

Early access to Superannuation – Coronavirus – April 17, 2020

Expats are probably aware that the government is now allowing early access to superannuation; up to $10,000 in the period to 1 July 2020, and a further $10,000 from July 2020 to 24 September 2020. Applications will be accepted through the ATO online services in myGov from April 20.

Expatriates may qualify for early access, because the government on this occasion has not tied access to eligibility for Australian social security. You will need to satisfy one or more of the following requirements:

  • You are unemployed.
  • You are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance.
  • On or after 1 January 2020, either
    • you were made redundant
    • your working hours were reduced by 20% or more
    • if you were a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more.

Obviously, we believe that drawing on your superannuation should be a last resort, but can understand that it may provide a welcome fallback for many Australians still overseas. We can't however comment on how well the ATO system is going to manage, or otherwise, the evidentiary requirements around eligibility for expats - they will likely struggle simply to meet domestic demand.

Overseas Redundancy and Taxation - April 3, 2020

The coronavirus pandemic has resulted in an unprecedented level of dislocation for Australian expatriates, with many returning home after having broken service with Australian and overseas employers. It's important to remind individuals to seek appropriate tax advice regarding those payments, because the proper management of those payments can have a significant impact on how they are taxed in Australia.

Further details are available on our page devoted to the taxation of redundancy and separation payments, and I've repeated a paragraph below:

"Ensuring that these payments are made on a tax effective basis will often involve direct communications between a tax professional and an individual's employer - with a view to ensuring any payment relating to overseas service meets the ATO's requirements. Note that even if the employer does not agree to making a payment on a tax exempt basis it may be possible to pursue a later refund from the ATO if a separate payment has been arranged. Prior professional advice is absolutely recommended before the receipt of any redundancy related payment."

Australian Super Funds generate very strong earnings in 2019 - January 18, 2020

Australian super funds, and more particularly "growth" funds, delivered very strong returns during the course of 2019. Consultants, Chant West, report that growth orientated super funds delivered an average return of 14.7% during the course of 2019.

In this context, Chant West defines growth funds as those that have between 61% and 80% allocated to growth assets - such as domestic and Australian equities - and that includes many super funds marketed as "balanced funds". Balanced funds tend to be the default option for many superannuation investors and include the majority of investment funds.

These are exceptional returns - and don't represent the norm - but nevertheless they illustrate why some continuing exposure to Australian superannuation should be considered by expats - and particularly by long term expatriates.

 

Discriminatory Main Residence CGT Legislation becomes Law - December 29, 2019

On Wednesday, October 23 the Assistant Treasurer, Michael Sukkar, reintroduced legislation to:

"remove the entitlement to the CGT main residence exemption for foreign residents other than where certain life events occur during the period that a person is a foreign resident where that period is six years or less"

The original Bill, which sought to deny the CGT main residence exemption to non-residents, including Australian expatriates, officially lapsed on July 1, 2019. The fact that the Morrison Government re-introduced the legislation removes any suggestion that extending the legislation to Australian expatriates, rather than just foreign investors, was a mistake or "unintended consequence".

The new Bill passed the House of Representatives on Wednesday, November 27, the Senate on December 5 and received Royal assent on December 15. Consequently, many expatriates will be denied the ability to claim the CGT main residence exemption, in part or in full, from July 1, 2020.

The Government's dogged pursuit of a this policy, which treats Australian citizens differently depending on where they are resident, simply because one pursues job opportunities overseas rather than domestically, is just inexplicable. The legislation should have been confined to foreign investors in Australian real estate, not to citizens and permanent residents. As a member of the Australian Tax Institute was quoted as saying in the media, "There is no legitimate policy reason for denying Australian citizens the CGT main residence exemption in these circumstances."

What is even more inexplicable is that the Labor opposition supported the new legislation on the basis that, "The original measure, as part of the 2017 budget, had some flaws, including its potential impact on expats and New Zealanders living in Australia. Labor is glad the flaws will now be fixed. This is a good measure that provides important revenue for the budget." Consequently, Labor are happy to protect expatriates on assignment in Australia but not Australian citizens on assignment overseas!

The Government's approach is possibly a reflection of the fact that the entire extent of the Prime Minister, Treasurer and Assistant Treasurer's overseas work experience appears limited to a two-year assignment by the Prime Minister in New Zealand twenty years ago. In any event, we summarise the new legislation in more detail on our CGT main residence exemption page. We stress that expats impacted by the legislation should carefully consider obtaining professional advice regarding the precise impact and options available - as soon as practicable.

We continue to take the view that all the Australian expatriates consider expressing their displeasure for these intended changes either through direct contact with the Prime Minister's office, or Treasurer's office, or more practically through the various Australian Chambers of Commerce. At the present time, however, the Government appears immune to reasonable discussion and it might be appropriate for Australian expatriate organisations to immediately withdraw hospitality and support to visiting members of the Government until there is a sense that the Government is prepared to explain why a discriminatory approach to expatriates is fair and reasonable.

RBA confirms: Australian banks still (far) too expensive for International money transfers - December 11, 2019

In an address to a Sydney conference on December 10, the Governor of the Reserve Bank, Philip Lowe, confirmed our previous advice, and the personal experience of many expatriates, when he indicated:

"The main results are summarised in this graph (Graph 6 below). In nearly every case, the major banks are more expensive than the digital MTOs. For the major banks, the average mark-up over the wholesale exchange rate is around 5½ per cent, versus about 1 per cent for the digital money transfer operators (MTOs)."
RBA: Cost of International Money Transfers from Australia

In the absence of special circumstances, for example access to commercial rates, expatriates will normally be better placed - both in terms of fees and exchange rates - using specialist foreign currency transfer companies rather than Australian banks, and should "shop around" - subject to ensuring that any service has appropriate financial licences.

Australian Management – "thy name is parochial" - September 14, 2019

From the date that this website was established, over 15 years ago, we have been highlighting the parochial nature of Australian companies and their management when it comes to the employment of returning expatriates. Recent research commissioned by Advance, suggests that nothing has changed in the interim period, and that is perhaps why Australia's commercial engagement with the rest of the world, and particularly Asia, isn't what it should be.

Some the major survey results include:

  • 73% of returning expatriates believe that Australian businesses are generally reluctant to hire Australians who worked overseas
  • 83% of HR respondents "are reluctant or cautious about recommending returning expatriates for Australian base roles", and
  • 35% of HR respondents believe recruiting returned Australians is more difficult than it's worth.

Apart from suggesting that the status quo remains, this means that returning expatriates should not generally rely upon recruitment advisors or agencies, who will always take what they regard to be the "line of least resistance". Care, wherever possible, needs to be taken to maintain personal and professional networks in Australia - and you need to honestly factor in the career risk of accepting an international assignment when considering any offer.

Of course, not all companies or industries are the same, and some welcome and foster international experience. However, it sadly remains the case, despite all the intervening years, that the seasoned, internationally experienced expatriate is likely to be asked, as one of their first questions, "what is your network like in Melbourne and Sydney?" Rather than what is your network like in Hong Kong, New York and London, or focussing on what new experience they might be able to bring to an employer.?

HELP, VSL and TSL Debts - ATO Data Matching - Australians Overseas - July 10, 2019

On July 5, 2019 the ATO announced that a data matching program would obtain information from the Department of Home affairs (DHA) regarding individuals with existing HELP, VSL and TSL debts. The ATO will match this information, "... against ATO records and other data we hold to identify debtors that may not be meeting their registration lodgement and/or payment obligations."

The data items that will be obtained - and the suggestion is that up to 3 million individuals might be involved in this process - are:

  • Identifying particulars for the HELP, VSL and TSL debtor population (name, date of birth, ATO/DHA identifiers).
  • DHA overseas movement details (Passport number, passport country of issue, offshore status, departure and return dates) held on DHA system.

We believe that a substantial number of Australians overseas are still not meeting their commitments with respect to student loans, probably because of the perceived "hassle factor" and the relatively awkward nature of the process. Regardless, we strongly recommend that you ensure that you are meeting any requirements and avoid being approached by the ATO. For more details see our page on Repayment of Help Debts.

IMPORTANT: The material contained in this website and other associated communications is only intended as general, background information and must not be relied upon. No warranty is provided in relation to any material or to the services that may be contracted through exfin.com. It is recommended that individuals seek the advice of qualified professionals before taking any action.