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Exfin Blog on Current Issues impacting Australian Expats

Australian Reserve Bank lifts Cash rate again by 0.25% to 3.10% - December 7, 2022

The RBA has again lifted the cash rates by 0.25 percentage points, from 2.85% to 3.10% - the eighth consecutive rate increase this year. This will continue to feed into mortgage rates over the next few weeks - with actual mortgage rates continuing to substantially lag increases in the base rate.

The recent lower increases likely reflect a concern that the RBA does not overcorrect and accelerate recessionary pressures, particularly given that consumers are yet to feel the full impact of recent rate hikes. Consumer behaviour in the Christmas period will be a major driver of where we see rate increases eventually "top out", but we are likely to see at least another 0.5% increase in rates, with most of the major banks predicting a rate peak prediction of 3.85%.

In dollar terms, the increase in interest rates since May has seen the monthly payments on a 25 year principal and interest mortgage of $500,000 and $1M increase by $834 and $1,668 respectively and impact affordability significantly - particularly impacting house prices in the more expensive capital city markets of Sydney and Melbourne.

Australian Director IDs - November 28, 2022

There are a number of Australian expatriates overseas who will need to apply for an Australian director ID. You require an ID if you are the director of:

  • a company registered with ASIC or the office of indigenous corporations
  • A corporate trustee - perhaps of a self managed superannuation fund
  • a registered Australian body, including incorporated associations registered with ASIC, and
  • a charity or not for profit that is a company or aboriginal and Torres straight Islander Corporation

Following the above, there are large numbers of qualifying Australians who need to apply for IDs, and this needs to be done before November 30, otherwise substantial penalties may apply.

In practice, many individuals have yet to make the required application. In fact, the media is currently reporting that, "almost a million Aussies could face a $13,200 fine from the Australian Taxation Office (ATO) for forgetting – or avoiding – a straightforward act."

If the numbers are indeed so substantial, we believe that it is almost unavoidable that the application deadline will be pushed back - but you can't rely upon this happening, and any expats who are qualifying directors need to make applications as soon as practicable to ABRS.

Post Script: As suggested above, the deadline for applications has now been extended - but only until December 14, 2022.

Australia: Housing Market forecasts – October 28, 2022

As the Australian housing market decline progresses, we are beginning to see some more refined analysis about what this might mean for individual capital city markets – beyond a simple assumption that what goes up must come entirely down. Some of the individual markers, such as Adelaide, Perth and Darwin were more affordable markets prior to the run up during Covid, and may not return to the previous levels of affordability.

The analysis below is from ME Bank and suggest that the two major markets, Sydney and Melbourne, plus Hobart which had seen enormous increases in prices over the last two years, will see continuing, significant falls prompted by ongoing interest rate increases and affordability challenges. This forecast probably predates the latest inflation figures which suggests that the RBA may feel the need to again accelerate interest rate increases and therefore further downward pressure on prices.

Australian Federal Budget: Items of Relevance to Expats - October 26, 2022

There were a few, if any, measures announced in the most recent Federal Budget of direct relevance to Australian expatriates. This was a conservative, domestically focussed Budget concerned to ensure that it did not add to inflationary pressures and that Australia is well-placed to manage through what appears to be a difficult two year horizon.

However, we would make a few comments regarding what was said, and not said, in the Budget:

  • There was no mention of any introduction of new tax residency rules. As we mention above, this is a very domestic Budget, and therefore while there is some possibility that there is a technical group still working on the introduction of the new tax residency rules by June 30, 2023 the fact that there was no mention in the Budget means that the introduction of new residency rules may have receded to 2024, or later. It wouldn't appear to be a priority of the current Government, and there probably isn't "enough money" in the new measures to justify a high prioritisation.

  • The Government indicated that it would defer the start date of a number of legacy tax and superannuation measures to allow sufficient time for policies to be legislated. These measures include, "the 2021–22 Budget measure that proposed relaxing residency requirements for SMSFs". Again, consistent with the above, the Government is signalling that it doesn't believe this is a priority matter.

  • Not of direct relevance to expatriates, but possibly to those with partners who are neither Australian citizens or permanent residents, the Government indicated that following a doubling of FIRB fees for residential land and property purchases in July, that penalties for non-compliance would also double with effect from January 1, 2023.

Australia and a (potential) global recession - October 15, 2022

While unemployment in Australia is at near 50 year lows there are very considerable concerns about pending recession. While consumer spending in Australia has not materially weakened (yet), consumer confidence has very significantly decreased - as can be seen in the chart below.

It's not hard to see why; a continuing war in Ukraine, resurgent inflation, a bear equities market, an energy crisis in Europe and elsewhere, UK economic mismanagement, OPEC production reductions, Chinese economic problems and the list goes on.

Internationally, while Australia might benefit from being a net energy exporter, and the market is not predicting a significant recession as yet, the IMF has consistently downgraded forward growth projections (see chart below) and it is hard to see Australia withstanding a significant international downturn. The ASX also seems to slavishly follow the US market regardless of realities.

The message for expats is that Australia is unlikely to offer shelter from what appears to be a potential global recession - what is most relevant is exactly how the Australian employment market reacts to any downturn and unfortunately we only usually get to see lagging indicators when it comes employment rates.

Housing Demand in Australia - September 15, 2022

Australian expatriates returning home, and expatriates on assignment to Australia, need to be very aware that Australia, like many countries across the world, is facing a significant housing shortage and care needs to be taken to ensure that you have arranged accommodation well in advance of any arrival.

The table below illustrates that Australia is experiencing .." the lowest national rental vacancy rate since 2006 and is at unprecedented levels both in duration and scope when considering the sustained lack of rental properties over the past six months as well as the geographical extent of the crisis whereby all cities and regions are experiencing rental accommodation shortfalls."*

What has been evident over the last few months has been a particular tightening in Sydney and Melbourne - not yet down to the levels being experienced in the other capital cities - but a clear trend is apparent.

* SQM Research

Land Tax - Queensland introduces a Tax based on Total Australian land values - September 7, 2022

Following a meeting with other state Premiers, it has just been reported that the Queensland Premier, Annastacia Palaszczuk, has decided not to proceed with changes to the application of Queensland stamp duty as summarised above. More details will follow.

Land tax in Queensland is currently assessed on the value of all non-exempt landholdings within Queensland only - it does not take into account any landholdings in other States - as at midnight on 30 June each year. Different thresholds and rates apply to individuals,corporations, trustees and absentees.

Now, based on recent legislation, on and from the year ending 30 June 2023, Queensland land tax will be based on the Queensland proportion of the total value of all the Australian land owned by the landholder - unless a land holding is excluded, with exclusions including "principal places of residence".

These changes are questionable in principle - Queensland as a State Government is attempting to tax individuals on their national assets and it will invariably cause conflicts with other states - and, whilst largely impacting investors with properties in both Queensland and interstate, it may also unduly impact Australian expats. This is because expatriates having a home in Australia and perhaps a holiday home in Queensland, or vice versa, will invariably not be able to claim an exclusion for their principal place of residence if it is rented out.

Government flags some potential flexibility on new tax residency rules - August 27, 2022

Assistant Treasurer Stephen Jones reportedly told an Australian Chamber of Commerce event in Singapore in the week beginning August 22 that the new tax residency rules were in the Government's "in-tray" ahead of the October Budget and the 45 day limit was "being looked into". At least some attempt at communication and dialogue from the incoming Labor government, in very stark contrast to the previous LNP administration.

Any additional flexibility would be good news to many Australian expats working and living in countries with which Australia does not have a double tax agreement, such as Hong Kong. See our page devoted to the proposed new tax residency rules for more background and detail.

Higher value properties leading house price falls - August 18, 2022

Not unexpectedly, data over the last three months shows that it is the value of higher end properties that are being most markedly impacted by interest-rate increases which are effectively reducing access to finance. This is particularly the case with expensive properties located in Sydney and Melbourne, but the expectation is that the trend will extend to the smaller capital cities, where affordability has not been as stretched, in the short to medium term.

Significant falls in Australian house prices - August 1, 2022

Data just released shows that Australian house prices are falling at their fastest pace since the global financial crisis, with the major markets, Sydney and Melbourne leading the fall. Commentators also expect conditions to worsen and the downturn to further accelerate in the short term in the face of rising interest rates Many analysts are predicting Australian property prices, on average, to fall between 10 and 20 per cent (from peak to trough) — with the two most expensive cities, Sydney and Melbourne, likely to incur the largest falls based on the most stretched affordability. Despite recent falls, an average house in Sydney still costs around $1.35 million, while an average unit may fetch about $806,000 The RBA is due to meet this Tuesday (August 2) with the market antcipating a further 0.5% rate incraese up to 1.85% If the central bank delivers another double-sized rate hike on Tuesday (0.5 percentage points), as widely expected, that would bring the new cash rate up to 1.85 per cent - it was just 0.1% in May.

Super Fund Performance - July 31, 2022

For Australian expats wondering how their Australian superannuation funds are faring, the answer is that 2021-2022 has been a very poor year for investments returns - as illustrated in the charts below contrasting retuturns for the 10 Best Growth/Balanced funds over 1 and 5 years respectively - funds appearing in both lists are highlighted in "blue". The best performing balanced growth fund over the last twelve months was Hostplus with a return of just 1.6%, with many/most large funds recording negative returns.

With Australian and global equities falling 7% and 12% respectively during the reference period - and, global bonds down by 9.5% and Australian bonds by 10%, delivering poor returns to even defensive investors - the results can even be described as "relatively good".

As we mention elsewhere, Australian expats can continue to invest in super even while overseas but care needs to be taken to ensure that it represents the best investment alternative in their particular circumstances.

Australian Travel Advisories - the world is very gradually turning "blue" - June 30, 2022

The Australian Government maintains travel advisories for almost all the countries in the world, at 4 different levels - which we track on a world map usually the following colours:

  • Level 1: Exercise normal safety precautions - Blue
  • Level 2: Exercise a high degree of caution - Green
  • Level 3: Reconsider your need to travel - Orange
  • Level 4: Do not travel - Red

Gradually over the last week we have seen more countries returning to their "normal" Level 1 ratings - these countries include Japan, South Korea, Denmark, Iceland, Norway, Sweden, Estonia, Latvia and Croatia - hence our comment that the world is gradually "turning blue".

Apart from being important when planning overseas trips, the travel advisories can be important in terms of arranging travel insurance and also life insurance - in the latter case, Australian insurers will only typically consider applications from individuals resident in countries where travel advisories are at level 1 or 2.

June has been a punishing month on the Australian markets - June 30, 2022

June was an awful month for both Australian equities and dollar - in our updated chart below you can see that the ASX 200 dropped nearly 9% over the months - with extreme volatility and softness continuing - while the Australian dollar dropped almost 4.5% against the US dollar.

As most expats will be aware, June has been a very poor month for stock exchanges around the world and the ASX has followed world markets. What's not more widely appreciated has been the decline in the AUD against the USD, as there has been a traditional flight to the USD as a "safe haven currency". That has left the AUD very undervalued on most assessments - but that doesn't matter much in the current environment.

The only small, faint light on the horizon for expats may be the ability to enter the Australian property market on more reasonable terms as prices moderate or fall - possibly quite substantially in the short term in both Sydney and Melbourne.

Superannuation Changes on July 1 - June 29, 2022

There are a number of changes to super that come into effect on 1 July, 2022 which expats should generally be aware of, particularly since some provide a bit more flexibility in terms of making non-concessional contributions to super after retirement or are return to Australia. We have summarised the three major changes below:

  • The superannuation guarantee is increasing from 10% to 10.5% - and is planned to reach a maximum of 12% on January 1, 2025
  • "Downsizer" payments, which previously allowed individuals aged 65 and older selling their family home to contribute up to $300,000 of the proceeds to superannuation have now been extended to individuals aged 60 and above.
  • A "work test" previously applied to individuals wanting to make personal or salary sacrifice contributions to super from ages 65 to 74 - the work test now no longer applies unless the individual is seeking a tax deduction for their personal contribution. Up to age 75, individuals can make non-concessional contributions to superannuation as long as they have less than $1.7 million in their fund and meet the various cap requirements.

Importantly, what appears to not be changing are the residency requirements around self managed super funds (SMSF) and small Apra Funds (SAF). In the 2021 Budget the Government announced that it intended to relax the residency requirements for both 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. These changes were intended to take effect from 1 July, 2022 but with no draft legislation and Parliament not scheduled to sit until July, 2022 we expect that the earliest these measure could have effect is now probably 1 July, 2023.

Double digit decreases in Australian property prices forecast - June 16, 2022

Property prices across most Australian cities are expected to fall by double-digit figures according to Australia's leading residential lender - CBA - see the table below. The RBA's latest increase to the cash rate of 0.5% was the largest over twenty years, but has since been overshadowed since by a 0.75% increase by the Federal Reserve as central banks around the world try to get ahead of inflation.

The early brunt of price decreases will be felt by Sydney and Melbourne, but even more affordable markets such as Adelaide and Brisbane will struggle to maintain momentum.

At some point, given an AUD which appears undervalued, the market might represent an "entry point opportunity" for expats during the latter course of the 2022.

Labor election victory: Impact on expatriates - May 23, 2022

The Labor election victory poses no obvious upsides or downsides for Australian expatriates. Labor adopted a "small target" approach to the election and basically mirrored the LNP's position in relation to most tax and financial matters - effectively relying upon the electorate's distaste for Morrison and a decade's worth of inaction on climate change to give them victory, although at an historically low share of the overall vote.

Given that the Tier 3 personal tax changes will proceed, and changes to GST are incredibly sensitive, particularly with significant current cost of living pressures - Labor has left itself with very few options in terms of Budget repair, although multinationals in Australia can expect to be - and should be - the focus of renewed attention in terms of their tax arrangements.

Although Labor can be expected to be more flexible than the LNP when it comes to listening to expatriates regarding the proposed new tax residency rules, particularly the prospect of being considered resident after 45 days in the country, major changes are probably unlikely at this stage and Labor may be disinclined to consider any changes which reduce revenue, given the above comments.

Overall, it's unfortunate that politics has reached a point in Australia where neither major party seems inclined to take the "long view" on policy matters, and seem unable or incapable of selling or communicating complex and difficult matters to the electorate. The hope is that Labor will surprise in this regard and be less purely "transactional" than the last Government.

Interest Rate Increase(s) Pending in Australia: Monthly Repayment Impact - May 1, 2022

As in many parts of the world the conversation in Australia is all about when, and not if, interest rates will increase and their impact on the housing market. On balance, the expectation is that the Reserve Bank will announce the first increase in the current 0.1% cash rate next Tuesday - perhaps a .15% or .25% increase - since November 2020.

This is just the beginning and views differ as to where interest rates might peak. The Commonwealth Bank expects the cash rate to peak at 1.25 per cent in early 2023, while Westpac predicts a peak of 2 per cent in mid-2023. ANZ expects the cash rate to reach 2 per cent by the end of 2023, and NAB has forecast a peak of 2.25 per cent by the end of 2024. Note that fixed rates have already pre-empted the RBA, they have risen considerably in recent months and their share of nmortgages has dopped from 46% last July to just above 25% in February.

What does this mean for repayments - the table below illustrates the impact on home loan repayments of interest rate increases ranging from 0.15% to 2.0% based on a 30 year principal and interest mortgage.

Federal 2022 Budget: A Non-Event for Australian expatriates, except that nothing was said about Tax Residency – March 30, 2022

Yesterday's Australian Federal Budget turned out to be a non-event for Australian expatriates, with no announced changes having any appreciable impact on non-resident Australians. We have however provided a summary of the major announcements below:

  • The Low and Middle Income Tax Offset (LMITO), which is only applicable to resident taxpayers, was increased by $420 for the 2021-22 tax year to $1,500. Importantly, the Government did not announce a further extension of the LMITO beyond 2021-22 when it is legislated to cease.
  • There were no announced changes to personal tax rates for 2022-23. The Stage 3 tax changes commence from July 1, 2024 as previously legislated. Consequently, from 1 July 2024 the 32.5% marginal tax rate will decrease to 30% and there will have one big tax bracket between $45,000 and $200,000. See our personal tax tables.
  • The temporary 50% reduction in minimum annual payments for superannuation pensions and annuities was extended a further year to include the 2022-23 tax year.

When Parliament resumed on March 29 there were several Bills, covering tax, super and other measures, before both houses of Parliament. It is possible that some or all of these bills will lapse when the Prime Minister calls a Federal election, which is expected to be on the 14th or 21st of May, 2022. Importantly, no comment was included within the Budget papers regarding the proposed changes to tax residency rules - that being the case, there is every possibility that these changes may be delayed and not come into effect until the 2023 tax year.

Important Superannuation Changes introduce additional flexibility for expatriates - February 11, 2021

Recently legislated changes to superannuation, first announced in last year's Federal Budget, provide important additional flexibility for Australia expatriates intending to retire in Australia, and older Australians generally, to make significant additional contributions to their superannuation balance.

The changes, which we were concerned may have been delayed because of the current legislative programme and upcoming Federal election, provide significant strategic planning opportunities from 1 July 2022.

The legislated changes included:

  • removal of the work-test requirement for non-concessional contributions (NCCs) and salary sacrifice contributions, for individuals aged between 67 and 75
  • extended eligibility to make NCCs under the bring-forward rule to individuals aged under 75 at the beginning of the financial year
  • extended eligibility to make downsizer contributions to those age 60 or over
  • removal of the $450 per month minimum income threshold in terms of the application of the super guarantee payment by employers

Note that some of the provisions around age cut-offs are quite specific and subject to balance caps, so professional advice should be sought prior to making any contribution.

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.

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.

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.

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