Expatriate life is a heady existence. There’s the opportunity to fast-track career aspirations, the novelty of travelling to new countries for just a long weekend, not to mention the experience of being exposed to new cultures, new traditions, and new friendships. And then, of course, there’s the lucrative expatriate package which can ensure an overseas posting is not just emotionally rewarding but financially rewarding too.
However, for many expatriates, myself included, there comes a time when Australia’s big open blue skies and the desire to be closer to family and friends lures us home. What can separate a happy homecoming from a sharp thud back to reality, is some essential financial planning.
Those especially savvy begin laying the foundations before taking up their overseas posting. The skilled advice of an internationally-experienced advisor can ensure the most favourable expatriate contract to maximise the path to personal wealth. Naivety in this realm can lead to individuals accepting less than favourable terms including tax equalisation clauses which can be especially painful to the hip pocket when living in costly international hubs.
Expert forward planning will consider not only your immediate move, but subsequent moves to match your five and 10-year aspirations and will factor in the complexities surrounding cross-border transactions including varying currencies, tax laws and the impacts of possible naturalisation in your newly adopted country (which can have its downsides despite the attractiveness of a foreign passport).
Share portfolios and superannuation funds require special focus. Governance of a self-managed super fund while a non-Australian resident can prove to be tricky and may call for the need to suspend contributions, appoint a new trustee, or close the fund. Voluntary contributions are more straightforward if you’re a member of an industry fund.
Many countries have their own pension or retirement plans (foreign super) where expatriates are required to contribute either compulsory or voluntarily. Upon moving to Australia, foreign supers can be directed to an Australian fund, which can have a more favourable long-term tax outcome. If you decide against transferring your foreign super, there’s only a six month grace period from the point of Australian residency, in which any earnings can be received tax-free.
As with any retirement planning, it is essential to think about tax implications and age restrictions from the outset.
BEFORE LEAVING AUSTRALIA
Tax can also become an issue if your asset portfolio is not dealt with prior to departure. Generally, with the exclusion of Australian Real Property (such as your personal residence), taxpayers are deemed to have ‘disposed’ of all worldwide assets at market value, the day they are no longer an Australian tax resident – effectively imposing tax on unrealised gains.
There is an exception to the rule, where taxpayers can elect to defer the capital gain. The difference in making the election and not, is that the realised gains on assets previously subject to CGT, will not be subject to Australian tax whilst living as a non-resident from the point of ‘disposal’.
It’s important to note, that the election applies to all assets and not left up to the owner’s discretion.
A non-Australian resident is only subject to tax on their Australian sourced income such as a rental property income and excludes all foreign income such as their personal salary and any investment gains.
Interest and unfranked dividend income on Australian investments for non-residents can attract withholding tax of up to 30 per cent – this rate will vary based on tax treaties. Fully-franked dividends paid to non-residents are not subject to withholding or additional Australian income tax.
Once firmly ensconced overseas, expatriates are often offered a myriad of off-shore investment schemes in tax havens such as the Cayman or British Virgin Islands as well as various insurance products. While these exotic financial options will be hot topics of conversation at the weekend barbecue, be wary that tax havens are under increasing scrutiny from the Australian Taxation Office and so implications of investing in these funds should be explored thoroughly with a qualified advisor.
Before the move to Australia, it is pivotal that you seek advice six to 12 months prior to relocation – this applies to returning residents and newcomers alike. Proper preparation allows for the opportunity to time the selling-off of any assets acquired overseas with an advantageous exchange rate or ensure any hard-earned bonuses are paid before re-entering the country and not taxable.
All assets that you intend to keep should undergo a valuation from the first day of your return to Australia. It’s from this date that any growth or profits are taken into consideration for tax purposes rather than the original date of purchase.
Any assets that were deferred at the time of departure from Australia will not be subject to the re-valuation as they have been ‘left’ in the Australian tax system. Assets that were ‘disposed’ will require a new valuation.
REPATRIATING A BUSINESS
Australians that pursue an extended adventure overseas seem to have a greater appetite for risk, and so it’s not surprising that many of them also use this time to launch their own business.
Whether its selling handbags or a hedge fund, the intricacies of bringing a business into Australia are many and thought must be given to how it slots into the local tax system, if at all.
For some, the tax burden may be too high, and it may be better to make the difficult decision to relinquish part, or total control of the company to keep it offshore. For others, it may be more favourable if an Australian resident company owns the overseas business.
There are some key tax exceptions that will often benefit an Australian resident who has an overseas business – which includes tax-free dividends from foreign companies and CGT free gains upon selling the overseas business. What’s important to remember there’s no one-size-fits-all solution. Repatriating a business requires tailored advice, specific to the individual.
Clients of Moore Stephens are uniquely placed to take advantage of its global network which includes 271-member firms in 112 countries to work in partnership with their Australian-based advisor to achieve the best outcome for their circumstances.
Even though Australia’s enviable lifestyle is what draws many to its shores, repatriating can prove difficult – especially if you’ve left behind a glamorous life involving regular travel, domestic help and a tax-free income. This adjustment is only made worse by an unexpected financial sting that, with a little forethought and expert guidance, could have been easily prevented.
This article was written by Simon DePaoli, Associate Director – Business Advisory, Moore Stephens, Victoria, Australia