Stamp Duty for Foreign Purchases - South Australia - 26 June 2017
From 1 January, 2018 South Australia will join Victoria, NSW and Queensland in applying an additional stamp duty surcharge - in this situation 4% - when residential properties are purchased by a foreign purchaser. A "foreign purchaser" in this situation is any individual who is not an Australian citizen, Australian permanent resident or New Zealand citizen who holds a special category visa. Other rules determine whether a company or trust will be treated as foreign for the purposes of the surcharge.
These changes won't directly affect Australian expatriates, because as citizens or permanent residents they are obviously not subject to the surcharge. But it is quite common for expatriates to purchase foreign property with spouses who are not Australian citizens or PR, and in that situation their share of the purchase price will be subject to the surcharge.
CGT Changes - Time to Sell your Australian Property? - 15 June, 2017
The Government announced some changes in the May, 2017 Budget which, depending on the precise legislation, could have a very significant impact on expatriates who have retained properties in Australia, and built up capital gains in those properties.
In the Budget, the Government announced that both expatriates, foreign residents and temporary tax residents in Australia will be unable to claim the capital gains tax (CGT) main residence exemption from May 9, 2017 - with existing properties owned prior to this date grandfathered until 30 June, 2019. What will be of particular importance is to understand whether the exemption disappears entirely at this later point in time, or an entitlement continues to exist on a pro rata basis. If the former applies, then many Australian expatriates sitting on large capital gains in Australian property, may need to consider very carefully whether they should sell those properties prior to 30 June, 2019.
Let's take an example just to understand the potential importance of this change for may expats. Lets assume that an expatriate owns an $800,000 property in Sydney, which was previously their main residence when they left Australia on July 1, 2013. ABS statistics show that over the period from end June 2013 to end December 2016 (last current available data) Sydney prices have risen by about 61% and therefore lets assume that property valuation is now $1,288,000 - disregarding, for the sake of simplicity, any capital gain that may have accrued prior to leaving Australia.
That leaves us with a capital gain of $488,000 dollars - and let's examine how that would be treated currently, and after 30 June, 2019 under the worst-case scenario - that is to say that non-residents cannot claim the main residence CGT exemption, and that no allowance is available for capital growth in the previous periods prior to 30 June, 2013 or growth from end 2016, for simplicity. These are conservative assumptions and do not consider either what access, if any, expatriates returning to Australia and becoming resident prior to sale, might have to the exemption.
Property sold with a capital gain of $488,000 - no CGT applicable on the basis of the property qualifies for the main residence exemption under the "six year rule".
Total CGT Payable = $0
Future - Worst Case Scenario - Sold on or after July 1, 2019
Property sold while the owner is non-resident, with no allowance for a CGT main residence exemption. The entire amount is liable for tax at non-resident rates, disregarding any carryforward losses that may apply as a result of negative gearing. Present tax rates assumed to apply.
$0 - 80,000 x 32.5% = $26,000
$80,001 - $180,000 x 37% = $37,000
$180,000 - $488,000 x 45% = $138,600
Total CGT Payable = $201,600
We have also been supportive of expatriates retaining residential property in Australia, both because it represents a reasonable investment and because it provides some insurance against significant movements in the real estate market in Australia, and exchange rates. However, recent government moves, including making expatriates ineligible for the 50% CGT from May 2012, and recent proposed CGT changes have materially impacted our assessment.
It will be in the interests of expatriates to very closely follow these developments, and seek specific tax advice with respect to their individual CGT position once the new rules are clear.
Timid Australian Companies - This time it's NAB - 12 May 2017
We've been critical in the past about what we regard as timid Australian companies, when it comes to expanding overseas, and particularly into our neighbourhood – Asia. I think it's fair to say that Australian expatriates individually have a very good reputation for flexibility and adapting to arrange of cultures, but the Australian companies have a poor reputation, with a few significant exceptions, when it comes to growing businesses overseas. Even more concerning, they have a reputation in Asia of having short time horizons, and withdrawing too quickly when times are tough.
You would think that amongst the best prepared companies would be the Australian banks, with an oligopolistic market providing them with a very stable base to gradually expand abroad. ANZ initially took the leadership under a CEO who had significant Asian experience, but there has been a clear retreat in recent years - probably because of short-term focused analysts in Australia concerned about ensuring utility rate returns from domestic banks, regardless of it leaving very few growth opportunities.
Now the National Australia Bank (NAB) has announced the sale of its Wealth business in both Singapore and Hong Kong to OCBC - retaining only a business corporate and institutional capacity. We continue to be the view that Australian expatriates are poorly served by Australian banks in Asia and elsewhere in the world, and our advice is that there is little or no added advantage to being the retail client of an Australian bank overseas; indeed quite the contrary - local or international banks will ordinarily provide a more complete, professional service.
And if you wonder why overseas experience is typically not valued in large Australian companies, and why they may have difficulty managing and growing overseas, review the senior management team of NAB and see how many had senior operational roles outside Australia and NZ, and outside London.
Australian companies, and their Boards, need to (urgently) give more thought to ensuring experential balance.
Victorian Absentee Owners Surcharge - Shotgun Implementation - May 2, 2017
As mentioned previously, the Victorian government has recently introduced an absentee owners surcharge of 1.5%, payable in addition to general land tax rates. In this context an absentee owner is an individual who
- Is not an Australian citizen or permanent resident,
- Does not ordinarily reside in Australia, and
- Was absent from Australia:
- on 31 December of the year prior to the tax year, or
- for more than six months in total in the calendar year prior to the tax year
So, in short, it does not apply to Australian citizens or permanent residents.
In terms of implementing the new surcharge, the onus has been on absentee individuals that own taxable land to inform the Victorian State revenue office (SRO) that they are taxable!
Given the complexity of the surcharge, and the fact that many owners are by definition not in Victoria or in Australia and therefore unaware the changes, you would have to assume that the SRO has not been inundated by individuals volunteering to be taxed. The result appears to have been that the SRO has been sending out tax notices to anyone, whether Australian citizen, PR or otherwise, with an overseas registered address. We have no doubt that some expatriates will have paid these invoices without checking their liability, and there are others who - having contacted the SRO to question their liability - are still being told they are liable when that is clearly not the case.
Just to stress; we are not talking about small amounts of money. If the taxable value of your land holdings in Victoria is AUD1M, then you will be payable standard land tax of $2,975 plus a surcharge of $15,000 (1.5%) = $17,975 per annum.
The easiest way to avoid the surcharge is to advise the SRO that you are an Australian citizen or PR - the general contact email address is: contact[at]sro.vic.gov.au
Contact us is you want to arrange professional advice or believe you have mistakenly paid an invoice.
Victoria's Vacant Residential Property Tax (VRPT) - a potential mess? - March 15, 2017
The Victorian Government has announced an intention to introduce yet another property tax, the Vacant Residential Property Tax (VRPT) with effect from January 1, 2018. Very few details are available at the moment, and not even draft legislation.
Insofar as the intention is to increase the availability and supply of property for occupation, we have no problems and are supportive - many major cities around the world suffer from having both large numbers of unoccupied properties and a shortage of available accommodation. Indeed, we invariably recommend that Australian expatriates rent out their property when overseas, it is usually the most practical and financially attractive approach, and indeed to do otherwise can cause problems in terms of establishing non-residency for tax purposes.
However, if the intention is to increase revenue, which is obviously an attractive byproduct for the Government, we have some issues in terms of both the design of the tax and its scope. The tax is significant, being 1% of the property's capital improved value, and is limited to certain geographical areas of Melbourne only. There are also certain exemptions with respect to "holiday homes (owned by those with a principal place of residence in Australia), a city unit for work purposes, properties in deceased estates and homes subject to legitimate temporary absences". Complexity is going to be high - for example, we wonder whether units rented out through AirBNB will count as vacant or otherwise for the legislation. Bear in mind that rumours exist to the effect that New South Wales may follow Victoria in this regard. More information will follow, and a summary when sufficient information is available.
Victoria and NSW Land Tax Surcharges - Big Tax Increases - February 20, 2017
Significant stamp duty increases in the eastern states - Victoria, New South Wales and Queensland - has distracted attention away from equally significant increases in land tax in both Victoria and New South Wales targeted at non-residents. They don't affect Australian expatriates directly, but may do so if property is owned jointly with a spouse who is neither a citizen or PR.
The two land tax surcharges are slightly different in their application, and we contrast them below - but both can add very significantly to your holding costs, in certain circumstances. The table below focuses on the liability of individuals holding real estate directly rather than through trusts and companies.
Who pays the tax?
How much tax?
An "absentee individual", and that is any individual who:
Reference : SRO Website
Land tax is based on the taxable value of the land - subject to a minimum threshold of $250,000.
and is additional to general land tax payable.
If only one of the joint owners is an absentee owner - for example, if an expatriate Australian citizen owns a property on a joint tenancy basis with their spouse, who is not an Australian citizen or permanent resident, then surcharge will only apply to their share of the property value.
The SRO's explanation of how tax will be applied is absurdly "Kafkaesque" - seek professional advice regarding how it may individually apply.
A "foreign person" who owns residential land in NSW. They are defined as::
An individual, who is not an Australian citizen, is a foreign person if they are not ordinarily resident in Australia.
Australian citizens are not "foreign persons", regardless of where they live. Permanent residents of Australia are not foreign persons so long as they are ordinarily resident in Australia.
Reference: NSW Office of State Revenue
Note: "The principal place of residence exemption does not apply for surcharge land tax. Even if an owner is residing in the property, it will be liable for the surcharge if an owner is a foreign person."
A foreign person is required to pay a surcharge of 0.75% on the taxable value of all residential land owned from 1 January 2017, in addition to any land tax already payable.Reference Example 3:
'A' (an Australian citizen) and 'B' (a foreign person) each own a 50% interest in a block of residential land with a taxable land value of $1 million.
The land tax payable by 'A' and 'B' is:
(Taxable land value − land tax threshold) x 1.6% + $100
The surcharge land tax payable by 'B' is:
Taxable land value of the interest owned by the foreign person x 0.75%
The applications of the tax a similar, but it appears that an Australian permanent resident would never be liable for the land tax surcharge in Victoria - but could be in New South Wales if they were not "ordinarily resident". See your tax advisor for more details if you believe you may be affected.
2016 HSBC Expat Global Explorer Report - January 4, 2016
HSBC has just released another Expatriate Global Explorer Report and it makes interesting reading. However, it does leave you wishing that you could delve into the details just a bit more and wondering about the how the population was chosen. The top occupation, comprising 14% of correspondents, was Finance, with Education at 12% and IT at 10% the next most represented. What happened to all the Engineers?
In any event, to summarise, the winner was:
"Singapore ranks first in the overall Expat Explorer country league table as the best place to live, work and raise a family abroad. Over three in five (62%) expats living in Singapore say they are earning more and 66% agree that their quality of life is better."
One very interesting aspect was that Australia ranked 39 out of 45 countries for "Education and Childcare" - ranking only ahead of Kenya, Indonesia, Egypt, Chile and Brazil. We are broadly critical of Australia's educational performance, but we are guessing that this is largely a protest against the cost of private education and the lack of access to childcare, rather than the perceived quality. We would love to see the detailed data.
SMSF's: Size Definitely Matters - December 23, 2016
Self managed superannuation funds (SMSF's) are enormously popular in Australia; they offer members unrivalled investment flexibility and cost competitiveness - but the latter only comes when the fund is sufficiently large to adequately spread the management and compliance costs. There is no legislated minimum fund size but we expect that you, or your advisor, should have very good reasons for establishing any fund with assets below $250,000. And, of course, if you are non-resident for tax purposes you may not be able to establish or continue to contribute to an existing SMSF, and you will need specific tax advice.
The fact that size matters in this case is very starkly illustrated in new figures from the ATO showing the average return on assets by SMSF's by fund size over the period 2011 to 2015. The figures are provided by the ATO, the SMSF regulator.
Australian Education - At a Crossroads - December 10, 2016
As an illustration of how throwing money at a problem doesn't always work, consider the performance of Australia in the OECD's Programme for International Student Assessment (PISA). It measures, "how well 15-year-olds, who are nearing the end of their compulsory schooling in most participating educational systems, are prepared to use the knowledge and skills in particular areas to meet real-life opportunities and challenges." The full report is available here but let me take a couple of significant but not totally unfair extracts:
Reading Literacy: "The reading literacy performance for Australia and eight other countries declined significantly between 2009 and 2015. For Australia this decline was 12 points."
Mathematics: "Australia was one of 10 countries whose performance declined significantly between 2012 and 2015. The decline in Australia’s performance was 10 points."
There are clear signs of education inequity in Australia, but was is clear is that both public and private education systems seem to have lost track of their basic purpose - providing a quality education. Certainly, after years of excessive, unsustainable growth in private school fees, 2017 is showing the first signs of a pull back. Hopefully, this means a returning to focussing on educational quality after years spent upgrading facilities, enormous sums spent on marketing and IT systems, paying private school principals as if they were CEO's and effectively reducing classroom time.
We've said it before, but we encourage all returning expatriates to consider enrolling their children in the International Baccalaureate (IB) as an alternative to local secondary qualifications.
Super Reforms Legislated - November 23, 2016
The Senate today passed the key Bill containing the superannuation changes mentioned above - and subject to the formaility of receiving Royal Assent they will pass into law very shortly. The changes are quite substantial and they have again added to the complexity of the superannuation system. In general they make it more difficult to transfer funds into super and therefore expatriates have to think further ahead when it comes to planning any return to Australia.
The key reform measures include:
- Reducing the concessional contributions cap to $25,000 for all taxpayers, regardless of age
- Introducing a $1.6M "transfer balance cap" which limits the amount that can be transferred to the retirement phase where earnings are tax-free.
- Introducing a "catch up regime' for concessional contributions for individuals with total super balances of less than $500,000 from 1 July, 2018
- Allowing a tax deduction for personal contributions without testing the proportion of employment income received - eliminating the so-called "10% test".
- Reducing the non-concessional contribution cap from $180K pa to $100K pa (or $300K under the bring forward provisions), limiting the ability to make NCCs to people who have a total superannuation balance of less than $1.6 million and introducing transitional rules for individuals triggering the the bring forward rule prior to 1 July, 2017.
- Removing tax exempt earnings for transition to retirement income streams with effect from 1 July, 2017.
Selling Property in the UK? - October 21, 2016
For those who have sold, or are in the process of selling, property in the UK be aware that there are new rules regarding the "notification of non-resident capital disposals". As a result of relatively recent legislation, non-residents can be liable for tax on capital gains made on the sale of residential property in the UK after April 6, 2015.
Under the new non-resident CGT rules, notification of the disposal (which needs to include a calculation of the non-resident gain - which is not straightforward for many people) must occur no later than 30 days from the date of settlement - using the web form below:
Failure to submit a return results in the same penalties as for late tax returns - which can make it very, very expensive.
Super Changes - Some Clarity at last! - September 17, 2016
Successful negotiations between the government and opposition allow the announcement of some significant changes to the rules surrounding superannuation on Thursday, September 15. They are quite detailed, and we've included a table summarising the major changes.
As far as expatriates are concerned, the announcement included limiting non-concessional contributions to superannuation to $100,000 per annum, compared to $180,000 per annum from July 1, 2017. Contributions to superannuation from overseas pension funds normally take the form of non-concessional contributions, so this represents an additional restriction, but nevertheless an improvement on the $500,000 "lifetime cap" originally announced.
From July 1, 2017 concessional contributions will be subject to an annual limit of $25,000, regardless of your age. However, from July 1, 2018, individuals will be able to make concessional contributions above that annual cap where they have not utilised their caps in previous financial years. This may make it easier for expatriates who remained tax residents of Australia (working FIFO rotating out of Australia) to make tax deductible superannuation contributions on their own behalf.
Generally, the reduced access to both concessional and non-concessional contributions, means that expats will need to greater thought to continually managing their superannuation in Australia throughout their time overseas– rather than relying on making large, non concessional contributions, on their return to the country.
Australian Federal Election - A fine mess - July 5, 2016
One clear purpose behind calling the most recent Australian federal election was to provide conditions in both the House of Representatives and Senate that were conducive to economic management. In other words, from a Liberal perspective, retaining a clear majority in the House and clearing out the host of small parties that had popped up in the Senate (eg. Motorists Party), presumably because of preference deals.
Fast forward to July 2016, and the Australian electorate has continued to direct votes away from the major parties with the result (subject to last minute vote counting) that neither party can govern in its own right, and an increasing array of small parties and individuals holding the balance of power. Just what you want if you are managing an economy in difficult times.
Turnbull disappointed many by not showing political courage and leadership after removing Abbott and community has responded with what may be a dangerous protest vote. Sadly, you get the politicians you deserve.
Meanwhile, many areas of importance, including changes to personal tax rates and superannuation remain unresolved. A good time to be overseas, unless perhaps you are in the UK where democracy may also be considered overrated sometimes.
Banking on Problems - May 20, 2016
We tend to find that Australians, more than perhaps any other nationality, share a dislike for their country's banks. That's not because of the staff within the banks, whom we generally find to be pleasant and professional individuals, but because the banking system is deeply oligopolistic. That has its advantages, it can allow for a strong banking system which doesn't need to take undue risks, but it can also give rise to arrogant behaviour. It is this mindset which we think has led to no Australian bank being truly successful overseas – whether it be in the UK, the US or Asia.
Why these comments now? Simply because the banks have very recently, partly as a consequence of pressure by their regulator, APRA, almost completely withdrawn funding for foreign investors in the residential market - over the space of only a few weeks. You can now expect that thousands of new apartments throughout Australia, purchased on a 10% deposit, will probably now struggle to find financing during the course of this year. The effect on the market could be extremely damaging, and on Australia's investment reputation.
This is not our market segment; we focus on providing finance for Australian expatriates and migrants. In our market, these changes have only a minimal knock-on effect, with maximum loan to valuation ratios still relatively stable, but probably trending towards an 80% maximum. This is not a problem for us, and we typically recommend a minimum 20% deposit on residential purchases simply to avoid the payment of lenders mortgage insurance.
What is deeply unpleasant about what the banks have done is the speed at which the changes have occurred. Unless the banks have clearly overextended themselves, which is an issue for the banks, then there is no excuse for any significant "change of policy" to have been clearly flagged in advance and introduced in a progressive manner. This could be a reputational issue for Australia, not just a banking issue.
HELP and TSL Loan Repayments - Expats - May 10, 2016
We've mentioned this elsewhere, but here is another reminder. Below is a notice circulated today to tax agents by the ATO
We are contacting taxpayers who have a Higher Education Loan Programme (HELP) or Trade Support Loan (TSL) debt to inform them that if they move overseas, they now have the same repayment obligations as those who live in Australia.
You have clients who will receive an email or letter from us and they may seek your advice about the changes.
What you need to know
- If your clients have a debt and intend to move overseas for 183 days or longer in any 12 month period, they need to notify us within seven days of leaving Australia.
- They must notify us by updating their contact details, including international residential and email addresses. You can update your clients' contact details using the Tax Agent Portal or they can do it via myGov.
- If they were already living overseas at 1 January 2016, they have until 1 July 2017 to update their details.
- Your clients will need to lodge a 2017 tax return declaring their worldwide income.
- If they earn income above the repayment threshold they will need to make compulsory loan repayments.
Australian Federal Budget : Short Expatriate Summary - May 3, 2016
There isn't much in the 2016 Federal Budget that will impact on expatriates, except the move to introduce a lifetime limit on non-concessional (after tax) contributions to Australian superannuation of AUD500,000. This lifetime limit is effective now and takes into account all non-concessional contributions made since 1 July 2007.
The significance of this move to expatriates is that most pension transfers from overseas into Australian superannuation are characterised as non-concessional contributions. If you are a long-term expatriate, seeking to retire in Australia, then this move will very significantly restrict the amount of money that you can move into superannuation. This is bearing in mind that the other form of contributions to superannuation, concessional (or pre-tax) contributions, will now also be restricted to $25,000 per annum.
From 1 July 2017, individuals with a superannuation balance of less than $500,000 will now be able to make additional concessional contributions, provided that they have not reached their concessional contributions cap in previous years. To work out how much in additional concessional contributions can be made in a given financial year, unused concessional cap amounts from 1 July 2017 can be carried forward on a rolling basis for a consecutive five year period.
We need to investigate the impact of these changes in more detail and whether any options exist to reduce the impact of these changes, but it could result in Australia being materially less attractive as a retirement location - at least on a "full time", tax resident, basis.
Meanwhile, the other major changes from a tax and super perspective included:
- Introducing a transfer balance cap of $1.6 million on amounts moving into the tax-free retirement phase, with balances able to increase above this cap, on account of tax free earnings, once transferred.
- Extending the 30 per cent tax on concessional contributions to those earning over $250,000 (previously $300,000)
- From 1 July 2017, anyone under the age of 75 will be able to claim an income tax deduction for personal superannuation contributions, regardless of their employment arrangements - this could be very useful for Australian residents working overseas on a fly in-fly out (FIFO) basis whose employers do not make pension contributions
- Increasing the upper limit of the middle income tax bracket of 32.5% from $80,000 to $87,000 per year - the new rates should look something like those in the Table below, subject to enactment.
2016 Budget : Resident Tax Rates 2016 - 2017
|Taxable income||Tax on this income|
|$0 – $18,200||Nil|
|$18,201– $37,000||19c for each $1 over $18,200|
|$37,001 - $87,000||$3,572 plus 32.5c for each $1 over $37,000|
|$87,001 - $180,000||$19,822 plus 37c for each $1 over $87,000|
|$180,001 and over*||$54,232 plus 45c for every $1 over $180,000|
*Note that an additional Temporary Budget Repair Levy of 2% is payable on incomes over $180,000 pa from 1 July 2014 to 30 June, 2017.
Mortgage Market Tightening Up - Time to consider Re-Financing?
April 4, 2016
Recent weeks have seen the Australian domestic banks considerably tightening up on their lending requirements - and that includes documentation for offshore borrowers, like Australian expatriates. Banks tend to be lagging indicators of the Australian real estate market, with a number of markets coming off the boil and regulators intent on reducing bank exposure to the real estate market.
There has also been a significant upsurge in individuals seeking to refinance their current mortgages - perhaps on the expectation that this represents the bottom of the interest rate cycle, or just wanting to put in place finance ahead of a market that is clearly becoming more difficult in most capital cities.
In this context, inertia remains the bank's best friend and our experience is that expatriates, even more so than Australian residents, will normally benefit from a review of mortgage arrangements. This is particularly for long-term expatriates, both in terms of mortgages and in terms of superannuation funds - particularly if super funds have been invested in old, retail superannuation products.
With the cycle going into a "tightening phase", the sooner any review occurs the better. This is a no loss situation. If no clear benefit can be demonstrated in re-financing, then the mortgage should remain in place, and otherwise no fees are paid to the mortgage broker who are directly remunerated by the new lender. Our mortgage brokers are well-qualified, experienced in dealing with expatriates and have access to almost all mortgage products in Australia. Please contact us and no cost or commitment attaches to any initial discussion.
The "Long" Tax Review Process - February 28, 2016
There is an urgent need to overhaul Australia's tax system - both direct income and corporate taxes are too high, stifling economic activity and the complexity has bred industries devoted to minimising tax. The community understands the imperative and with Turnbull's elevation to Prime Minister there was a hope and expectation that an economically literate politician would have the courage to make radical changes. Politics, however, seems to have interfered and - Abbott like - any changes to politically sensitive ares such as GST have been systematically removed from the table. If the saying that, " a country gets the politicians it deserves" is true, then Australia is in trouble.
The current position appears to be that Turnbull, concerned that he has lost control of the review process, now knows that he cannot wait until the May budget to announce tax changes. The community hates uncertainty and this has translated to sliding poll results.
Our current bets on what will happen, and how it might affect expatriates includes:
Reductions in Superannuation Contributions Caps
Many expatriates make non-concessional (after tax) contributions to superannuation on their return from overseas or while living overseas. You can currently make a contribution of up to $180,000 per annum, and there are provisions which enable you to draw forward up to 2 years - making it possible to make a maximum non-concessional contribution of $540,000 in one lump sum over a three year period. If you have a wife or partner, then of course the contributions can be duplicated into their funds.
There are strong rumours at present that the level of non-concessional contributions will be reduced, either directly or by reducing the concessional cap to $20,000 - a significant reduction in the current cap of $30,000 ($35,000 for those over 50). Since non-concessional contribution caps are directly linked to the level of concessional contributions - being six times the concessional level (6 x $30,000 = $180,000) - this would see an automatic reduction in non-concessional cap to $120,000 per annum. Alternatively there is "political room" for non-concessional caps to be simply reduced markedly.
It is not clear what form a reduction in negative gearing provisions might take - perhaps a cap of $30,000 per annum in losses - but there is a clear pressure to reign in this deduction. Alternatively, adoption of a "Canadian" model would see the tax deductions only available in situations where the investment is considered viable and losses cannot be offset against wages and salaries.
Both these potential changes could have a significant impact on expatriates, but the former is particularly alarming to long term expats looking to return to Australia and transfer funds into superannuation. What is also alarming is that Governments hungry for revenue tend to focus on those parts of the economy where they do not run a political risk - and expatriates aren't part of the electorate; the electoral process effectively disenfranchises them. The s23AG changes of 2009 are a prime example - changes implemented at short notice which have undeniably cost the country hundreds of millions of dollars in revenue.
Exfin Inquiries - Where in the World - January 1, 2016
We thought you might be interested to see where we get most of our inquiries originate from, geographically speaking. About half of our inquiries orginate from Australia - from Australians wanting advice in advance of an overseas assignment, about establishing a business overseas or managing foreign assets or pension funds - or from foreign expats in Australia. The other half, originating outside Australia, come from a very wide range of places and in the ten years we have been operating we've had inquiries from every country in the world, with the exception of some of the smaller African nations.
The pie chart below illustrates the geographic location of our inquiries over the last six months of 2015. No great surprises probably, with some of the traditional locations for Australian - London, Asia and the Middle East featuring strongly - but we have seen a significant increase in inquiries out of the US over the last year. This is probably a reflection of economic growth and some particular tax issues that apply to Australians working in the US.
HELP Debts - Now payable by Australian Expatriates from July 1, 2017 - November 10, 2017
The Australian Senate has just passed legislation providing for the repayment of Higher Education Loan Programme (HELP) and Trade Support Loan (TSL) debts by Australians who are living overseas and earning above the repayment threshold.
Individuals overseas with HELP or TSL debts will be required to make repayments from 1 July 2017 based on their Australian and foreign-sourced income for the 2016 -17 financial year onwards in the same fashion as resident Australians.
For the 2015-16 financial year, the payment threshold is AUD54,126 and importantly, from January 1, 2016, all people with a HELP or TSL debt who exit Australia with the intention to go overseas for more than six months will be required to register with the ATO using a myGov account.
Individuals with a HELP or TSL debt who are already overseas at this time will have until July 1, 2017 to register with the ATO. People with a HELP or TSL debt will be required to self-assess income received in the 2016-17 financial year and submit details of their foreign-sourced income, with repayments required to be made from 1 July 2017.
Self-assessment of income will be due by 31 October each year in the same way as tax returns of Australian residents. Returns will be submitted and payments made through the MyGov website.
We hope that the ATO produces some comprehensive FAQ's which support these changes - particularly around what constitutes income - as we forsee a phenomenal amount of complexity and confusion initially surrounding these changes.
Foreign Currency Payments - More Flexibility - November 9, 2015
Inertia has long been the friend of banks and other large financial institutions in Australia - clients can often be relied upon to remain in products such as mortgages and bank accounts which are non-competitive because the cost and time involved in switching is just unappealing. This is particularly the case with expats where the hassle involved in doing anything in Australia is often simply just awful.
We haven't managed to get Australian expats to review their mortgages more often but one area that has improved tremendously over the last ten years is access to competitive foreign currency transfers - not through the banks of course but non-bank provider like Ozforex, which is now a listed ASX company. They have just announced a reduction in the minimum deal size across all their platforms - for example, the minimum deal size for registration is now AUD250, CAD200, EUR150, HKD1,500, NZD250, THB 7,000, USD150 and ZAR2,000. Go to Ozforex for more details - remember, whether you use Ozforex or another provider, the focus needs to be on carefully comparing rates and other costs.
HSBC Country Survey - Expatriate Survey 2015 - September 28, 2015
HSBC has just published a survey entitled, "Balancing Life Broad" including responses from 21,950 expats across the world, which have been used to create country league tables covering three aspects of life abroad: Economics, Experience and Family. The results, published in the chart below show Singapore to be the most attractive location across the surveyed 40 countries.
Not everyone is going to agree with these results, which is more than half the fun, but the relatively poor performance of the UK, and surprisingly good performance of Russia - it ranks just above the US - has caused us to have a few questions about methodology. Note that you can click on the Legend colours to select or de-select any of the three attributes.
QROPS Transfers - Where are we now? - September 18, 2015
In July of this year HMRC deleted thousands of foreign overseas pension funds from its list of Qualifying Recognised Overseas Pension Schemes (QROPS). As we mention elsewhere on the website (see below), the list of qualifying Australian schemes fell from over 1600 to only 1, the Local Government Superannuation Scheme in Queensland (open only to local government employees), overnight.
This came precisely at a time when demand for UK transfers was increasing, largely as a result of an improving GBP exchange rate. As a consequence, we have advised individuals interested in initiating a transfer, to defer any transfer for a couple of months, pending ongoing discussions between the UK and Australia.
In the meantime, the list of qualifying Australian QROPS has grown to 5, at the time of writing. One possible compromise, which we mentioned some time ago, is establishing a superannuation fund which can only accept transfers from individuals aged over 55. If you remember, it was the fact that Australian superannuation schemes allowed access to funds before age 55, albeit in a very narrow range of circumstances, that effectively caused them to not meet UK regulatory requirements.Therefore, at least for individuals aged 55 and above, we may have a solution available shortly in the form of a special self managed superannuation fund (SMSF) which is capable of being a QROPS and accepting funds from the UK. However, this does not address the issue of individuals below age 55 and where individuals are contemplating the transfer sums which are not large enough to justify the establishment of a SMSF.
I should point out that individuals also have the option of transferring their pensions to QROPS elsewhere in the world, in jurisdictions such as Malta. There are circumstances where such a transfer is advisable, but it should not be done without specific financial planning advice. And if the intention is to eventually transfer into an Australian superannuation fund, such an action can constitute an expensive and unnecessary step.
Offshore AUD Term Deposits - Unsurprising News - Australian banks are still unattractive - July 30, 2015
For what seems like decades, Australian banks have offered uncompetitive rates on AUD deposits offshore - and they don't look like changing. Most offshore Australian bank branches offer very little or no support to Australian expats overseas unless you qualify as "very high net worth", and probably earn most of their income from arbitraging the difference between local AUD rates and those applying in the Australian market - and sending local funds back to Australia. They deserve some criticism and we would ask you to look at making your deposits directly in Australia - even bearing in mind a withholding tax of 10% on the interest income you will still be earning a significant improvement on what's available offshore.
HMRC and QROPS - A Right Royal Mess - 17 June, 2015
A QROPS, or "Qualifying Recognised Overseas Pension Scheme", is a pension fund which is authorised to accept UK pension transfers, without UK tax applying to that transfer. Many thousands of QROPS funds currently exist around the world, including over 1500 in Australia alone, They basically need to meet a number of criteria which ensure that any funds transferred continue to meet retirement requirements, and are not, for example, encashable on transfer.The penalty for not meeting QROPS requirements can be severe, including tax rates of 55% and higher on transferred sums.
On April 6, 2015 an amendment was made to UK pension regulations to the effect that no QROPS scheme could allow the payment of UK sourced pension money before the age of 55 except where there was a case of serious ill health meeting UK requirements. A letter from HMRC later in the month to all QROPS funds around the world asked them to confirm that they met this condition as at April 6; in effect retrospectively!
The problem for Australian super funds is that Australian superannuation law permits limited withdrawals earlier than age 55 on other than grounds of ill health; such as in the case of severe financial hardship and on compassionate grounds. The result is that many major superannuation funds, particularly the large public offer funds, are unlikely to change their trust deeds to meet the requirements of HMRC; given that the great majority of their members have no UK pension transfer funds. As a result, they may cease to be QROPS schemes - and whilst this should not affect individuals who have transferred their funds prior to April 6, it has caused immense confusion with current pension transfers.
In parallel, there have been other significant changes to pension rules and regulations in the UK, which will also have an impact upon Australian expatriates and British migrants returning from the UK. For example, anyone transferring from a defined benefit/final salary scheme where the fund value exceeds £35,000 is now required to seek advice from an independent financial advisor in the UK prior to that transfer proceeding. On the other hand, greater flexibility has been introduced into the payment of pensions post age 55, and there may be more situations where arranging a pension transfer is no longer the most optimal approach to accessing funds.
On July 1, 2015 the HMRC published it's regular list of QROPS funds on a global basis and included only one fund in Australia - the Local Government Superannuation Scheme (LGSS) - and deleting reference to some 1600 other Australian schemes. The LGSS was apparently spared deletion because the April 6 amendment does not apply to "overseas public service pension funds". The exclusion of many other funds suggests that HMRC believes that trust fund amendments are an inadequate response. One possibility is that they have legal advice to the effect that Australians have a statutory right to access in a situation for other than ill health and these are unaffected by changes to the trusts deeds. More information is needed - meanwhile QROPS transfer to Australia will effectively cease.
New Mortgage Restrictions: Expats and Foreign Investors - May 18, 2015
A number of the regulators, including the Reserve Bank and most recently ASIC, have been voicing concerns about a potential bubble in the Australian real estate market, particularly in Sydney and Melbourne. As a consequence, we have seen the major banks recently review their lending policies and institute a reduction in the maximum lending ratios for Australian expatriates, temporary residents in Australia and foreign investors purchasing Australian property:
The main changes to the non-resident lending policies are as follows:
- The maximum loan to valuation ratio (LVR) available for Australian citizens and Permanent Residents living and working overseas and earning foreign income is now 80%.
- The maximum LVR available for temporary residents in Australia (e.g. 457 visas) and New Zealand citizens living outside Australia is now 80%.
- The maximum LVR for foreign investors is now 70 - 80%.
In the space of two months we have now had a reduction in LVR's, an increase in stamp duty and land tax in Victoria and the announcement of large new application fees for foreign investors. The target is very clearly foreign investors, but you do get the impression that Australian expats might end up incurring some "collateral damage".
Budget 2015 - Measures Affecting Expatriate Australians - 13 May, 2015
There were very few items of significance to Australian expatriates in the 2015 Budget - which is a relief given that recent Governments have developed a habit of happily taxing a community which doesn't have any direct voting leverage. These Governments have also tended not to discriminate between foreign investors and Australian citizens and permanent residents who maintain homes and assets in Australia to the detriment of expatriates. We have summarised the major Budget changes below:
Announced last year, the HELP scheme will be amended to require Australians residing overseas to repay their HELP debts - effectively extending the same rules to Australians living overseas as currently apply to those who reside in Australia., Graduates living overseas and earning incomes above the minimum HELP repayment threshold (AUD53,345 in 2014–15) will be required to make payments towards their HELP debts.
The new arrangements will apply from 1 January 2016 to both new and existing debts and from this date anyone with an outstanding HELP debt going overseas for more than six months will be required to register with the ATO. Individuals already residing overseas will have until 1 July 2017 to register and repayment obligations will commence from 1 July 2017 (for income earned in the 2016–17 financial year).
We don't have a problem in principle with this approach - but we do have some considerable concerns about how it is going to work in practice and the gradual extension of the ATO tracking mechanisms.
Reduced Pension Portability Overseas
Some social security pensioners, including the Age pension, will now have their pension rate reduced if they are absent from Australia for more than 6 weeks - currently, they can be absent for up to 26 weeks without a reduction. After 6 weeks absence from Australia, pensioners who have lived in Australia for less than 35 years will be paid a reduced rate of benefit proportionate to their Australian residency based on their Average Working Life Residency (AWLR) . AWLR covers the period a person has lived in Australia from age 16 to age pension age. Pensioners with more than 35 years AWLR will not be affected.
This is a complicated area and much will often depend on whether pensioners are living in a country with which Australia has a social security treaty - the best source of advice is Centrelink's International Department in Tasmania.
Tax Exemption Discontinued for Government Employees
In 2009, the Labor government severely restricted the operation of section 23AG which provided a tax exemption in relation to overseas employment where it is was for a period of 90 days or more - but left the exemption in place for a range of government and aid workers. The Budget has now removed that exemption for government employees who earn income while delivering Official Development Assistance overseas for more than 90 continuous days, but left it in place for Australian Defence Force and Australian Federal Police personnel and individuals delivering Official Development Assistance for a charity or private sector contracting firm.
Individuals in Australia on Working Holiday Visas
The Government will change the tax residency rules from 1 July 2016 to treat most people who are temporarily in Australia on working holiday visas as non-residents for tax purposes, regardless of how long they stay in Australia. This means they will be taxed at 32.5 per cent from their first dollar of income and will not have access to a tax-free allowance.
Victoria "Jumps the Shark" - Stamp Duty Increases on Foreign Purchases - May 4, 2015
For a number of years the Australian Government's attitude as been to encourage foreign investment in real estate as long as it is directed to increasing the available housing stock; hence why foreign investors are fundamentally limited to buying new, rather than established, housing. Our view is that we don't think there's anything wrong with that approach that improvements in policing can't address.
Last year a Commonwealth Parliamentary Standing Committee conducted an inquiry into foreign investment in Australian real estate and concluded that introducing additional stamp duty for foreign buyers would both inhibit investment and reduce the amount of housing stock. Nonetheless, the newly elected Labor government in Victoria announced on the weekend that they would nevertheless introduce an additional 3% stamp duty for foreign buyers and increase the land tax payable in tomorrow's State Budget.
That is an additional payment of $15,000 on a $500,000 property; $30,000 on a 1AUDM and our view is that, unless there is a side agreement in place to the effect that all Australian states will follow their example, Victoria has clearly "jumped the shark", as they say. We think they have probably picked the absolute crest of the property boom and are well-placed to share in the blame for a sharp retreat in the Victorian market.
The Government also announced that it will be charging a surcharge of 0.5% from July 2016, in addition to any other land tax payable, on land being held by ‘absentee landowners’. Tthe Government did not identify who constituted an ‘absentee landowner’ in the Budget and therefore it is possible the surcharge will apply to expatriate Australian citizens and PR's.
Returning expatriates are unlikely to be impressed at the quality of governance, Federal or State, in Australia at the moment.
Post Script : Proposed Changes to FIRB Rules - March 3, 2015
As a postscript to the article below, the Treasurer has today (March 3, 2015) ordered the forced sale of a Sydney mansion recently sold for AUD39M to one of China's richest men via an Australian company. The Sydney Morning Herald has indicated that the order has, "shocked prestige agents who had believed the purchase did not require approval from the Foreign Investment Review Board because the purchase was in the name of an Australian company". If that is really the case then these agents need to go back to school and perhaps review past sales for compliance. As mentioned in the FIRB's frequently asked questions page:
Q4.4. I am a foreign non-resident, do I need approval to buy real estate through an Australian incorporated company or unit trust which has at least one Australian director or shareholder/unit holder?
Australian incorporated companies or trusts where 15 per cent or more of the shares or units are beneficially held by a foreign person are themselves considered to be 'foreign' and require approval.
By the way, the sales tax on a AUD39M property is an eye-watering AUD2.67M!
CGT Changes in the UK affecting Non-Residents - December 17, 2014
A substantial number of Australian residents, and Australian expatriates overseas, have retained property in the UK and will potentially be affected by new legislation with respect to UK capital gains tax (CGT) scheduled to come into effect in April 2015.
In the past, the sale of UK property by a non-resident individual has not normally been subject to UK capital gains tax. This is anomalous in the sense that where a UK resident sells UK property the capital gain is subject to CGT at either 18% or 28%; although complete relief is available where the property is designated as being their principal private residence (PPR).
In changes first signalled earlier this year, and subject to consultation throughout most of the course of this year, draft legislation was introduced in early December 2014 which would:
- Impose CGT on the sale of residential UK property by nonresident individuals, trustees, states and "close" companies with effect from April 6, 2015.
- for the purposes of the legislation,properties purchased "off-plan" will also be treated as fully completed residential properties, and liable to CGT on any gains arising after 6 April 2015.
In terms of how any gains would be taxed by the UK:
- The tax payable by non-residents would be the same as the rates applicable to UK resident individuals. This means that, applying current tax rates, that gains under around £32,000 will be liable for a 18% charge and any additional gain will attract a charge of 28%.
- Non-residents from most countries will also be able to use the annual exemption, currently £11,000, to reduce the CGT payable.
Some comments from a practical perspective:
- Australian residents are likely to be able to claim any capital gains tax paid in the UK as a tax credit in Australia - offsetting any CGT liability in Australia; but specific advice should be sought.
- Non-residents with UK property should probably seek to have the property valued as at April 6, 2015 to clearly "lock-in" that part of any capital gain not subject to UK tax.
- many UK temporary residents in Australia may be affected by the change - and particularly by the requirement that the PPR relief will now be dependent on individuals having resided in the property for at least 90 nights a year. This new 90-night provision will come into force on 6 April 2015.
Australia has no inheritance tax – that's mainly correct - November 11, 2014
In principle, and mostly in practice, Australia has no inheritance tax – that's to say no immediate tax on the transfer of assets from one generation to another. However, the rules around the application of capital gains tax (CGT) for non-residents differ from those applying to normal, everyday resident Australian's - and it can give rise to substantial tax issues.
To explain in more detail, as a general rule capital gains tax (CGT) applies to any change of ownership of a CGT asset, unless the asset was acquired prior to the introduction of CGT (20 September 1985). However, specific rules typically disregard any taxable capital gain or loss if, when a person dies, an asset they owned passes either directly or indirectly (via a legal representative) to their beneficiary.
However, the big exception to these rules from an Australian expatriate's perspective is that a CGT loss or gain is not disregarded if the assets are passed to a beneficiary who is a foreign resident (i.e. non-resident for Australian tax purposes). In that situation, a CGT event is taken to have happened in relation to that particular asset(s) at the time of the individual's death. These capital gains and losses should then be taken into account in the deceased's final "date of death return".
Things to note in this regard:
- Estate executors need to be aware of this exception; they are responsible for producing the final tax return and for any tax payments forgone. Many Australian domestic advisors are not aware of these rules, much less executors, and it represents a significant potential liability.
- In many situations, proper estate planning can avoid the immediate payment of CGT in these situations, and
- Finally, a reminder that non-residents are no longer able to claim the 50% CGT discount - so it may not be (as) attractive to retain Australian assets gifted in a will.
Off the Plan purchases - Gambling, not Investment - September 25, 2014
A substantial industry in Australia has grown up around the sale of "off the plan" apartments, largely in Asia. The major inducements tend to be a low initial deposit (usually 10%), stamp duty savings and guaranteed rental returns, usually for one to three years. We regard investments in off the plan apartments as more akin to gambling than investment - with developers and middlemen the only sure winners in the process.
We see no reason whatsoever why Australian expatriates should participate in these types of purchases, as opposed to properly researched individual purchases - particularly as expatriates, unlike foreign investors, are not restricted to the purchase of new buildings.
Properly researched investment purchases come at a cost - typically around 3% of the purchase price - but bear in mind the following when considering an "off the plan" purchase:
- You are typically buying a "box" - often one of hundreds in the same building sharing the same general characteristics. In a difficult market, both in terms of sale and rental, you have no point of differentiation. You have purchased a commodity.
- Investor roadshows, rental guarantees and substantial sales commissions cost significant amounts of money - they effectively require a "rising" tide" to ensure investors are in the black at the time of settlement. A recent survey suggests that, "nearly 44% of apartment purchases in Australia's most populous cities are below the sale price at the time of completion".
- Financing can be a problem. Currently, mortgages of up to 90% of a property's value are available for Australian expatriates, and up to 80% for foreign investors. It is common situation however that banks do not accept, as per the above, that your sale value is the appropriate value for mortgage purposes - and they will often quote a different, and significantly lower, valuation.
In summary, resist the temptation to gamble or be lazy, and either manage this investment yourself directly - by returning to Australia for enough time to research the market and buy accordingly - or engage an appropriately experienced property professional to conduct the search, negotiation and purchase.
Assignments to the US - Travelling the Yellow Brick Road - July 24, 2014
The United States probably contains the second largest concentration of Australian expatriates in the world, with significant communities in California, New York and Texas. Anecdotally, Australians often find it easy to adjust to life in the US and it is one of those relatively rare countries in which Australians, renowned for eventually returning home, will choose to settle permanently.
The country offers probably unmatched career and entrepreneurial opportunities in many fields and we are brought up with the notion that it offers low taxes, cheap housing and a low cost of living. However, perfection is a rare quality and assignments to the US pose their fair share of challenges.
The US is clearly going to remain a popular destination for Australian expatriates, but some considerations need to be borne in mind:
- Most comparisons of tax levels tend only to look at federal tax levels - the US states can impose their own taxes and these can be significant, particularly in California and New York. Local taxes, to fund schools and other facilities, can also apply.
- The US tax system is very complicated and Australian should not become tax residents without receiving professional advice, and they should not become green card holders ( i.e. permanent residents ) or US citizens without first receiving advice. Obtaining a green card or citizenship has very significant long-term implications, even if your intention is to return to Australia.
- Medical and health costs are perhaps the highest in the developed world, and you will need health insurance. Going without insurance cover, particularly if you have a family, is not an option and insurance costs can be very high.
- A recent, high profile, issue is the fact that the US may levy tax on the annual earnings of Australian superannuation funds held by tax residents - even if you do not yet have access to those earnings.
- Typically, Australians will not have access to local US mortgages until they have established a credit rating, and this will take 18 months or longer