Financial Advice for Australian Expats – The keys to reducing tax and increasing wealth whilst living overseas
Moran Howlett Financial Planning has for a number of years been working with key clients that have moved offshore (namely Hong Kong, United States, Thailand and Singapore) to enjoy a better working/family life whilst also looking to increase their earnings. However, there is often a trap when you move offshore that people dont take advantage of the special tax circumstances this places them in, whilst also not taking advantage of their increasing income. As such, people often come to us (referred by existing clients) after a year or so of being Overseas asking how they can take advantage of the “5 years they are spending away” to ensure they are in a good financial position when they finally come back to Australia.
If you are living and working overseas there are a number of additional factors you need to be aware of when managing your money.
Usually, it will mean that you wont be a tax resident here in Australia. Instead, you will have become a tax resident of the country in which you are residing. Becoming a non-resident for tax purposes in Australia gives rise to a number of considerations. For instance, non-residents pay a higher rate of tax (29% or more) and are not afforded a tax-free threshold. This is very relevant if you own assets in Australia that produce an income. Typically, this might be an investment property or even renting out your family home whilst you are away. As such, it is vitally important that you are across the tax implications of such a move for your assets here in Australia.
If you are considered a non resident for tax purposes will depend upon whether the country you are moving to has a Double Tax Agreement (DTA) with Australia. Generally speaking, a DTA will ensure that you “dont pay tax twice”. ie. once in the country you are working and once here in Australia. This is particularly important when it comes to your salary being earned as well as your investment income on assets (ie. family home being rented) here in Australia.
Any investment income from Term Deposits or Dividends are taxed here in Australia and are subject to a withholding tax which is 10% for interest and 30% for dividends (however, as the dividends come with a tax credit of 30% this effectively means that there is no tax payable upon receipt of these dividends.)
In most cases, non-residents are still eligible to make contributions to an Australian superannuation fund. Super contributions may even be tax deductible, but this may only be of benefit where you have sufficient assessable income (which could come about in the form a rental income on your family home) in Australia against which to claim the deduction.
The application of capital gains tax (CGT) is also something you need to consider. Presently, non-residents are entitled to the 50% CGT discount where an asset is sold but was owned for longer than 12 months. CGT applies to profits realised on property in Australia, but profits on Australian shares are exempt for non-residents.
Ensuring you increase your wealth
We have found that the key to making your “offshoring” work is to continue to be considered in your approach to savings. Often, clients will receive a significant salary benefit when they move offshore – however, the temptation to turn this salary increase into “Lifestyle benefits” is often too much for most expats. As such, we help our clients manage their cashflows and give them an understanding of the impact that their current spending is having their longer term goals and objectives. As I often say if one of the reasons you want to move offshore is that you are looking to catapult your financial position, then you best take advantage of this. We often say, make sure you enjoy the lifestyle living in Europe/Asia gives you, but lets make it work from both a lifestyle and financial perspective.
Get clear, concise and advice free from conflict!
The final item that all expats working overseas need to be aware of is unscrupulous financial advisers that get paid a commission from “selling product” – In the most part most offshore markets are completely unregulated and advisers can receive up to 20% commissions on client savings plans. That is, if you invest $50,000 over the first year, the adviser can recieve 20% of that as an upfront payment ($10,000). Of course, the products that are being sold have very high fees involved to be able to ensure that the commissions can be paid. As always, our view is that you need to pay a fee for service to ensure the “advice is in your best interests and free from conflict”
If you have any further questions about how you can take advantage of your offshoring experience, feel free to contact us on +61 3 93808844, or email@example.com. We make regular trips to see some of our offshore clients in Thailand, Singapore, Hong Kong and the United States, whilst also Skype is a great tool for initial client conversations and interactions.