ASX200 - The unexpected rebound continues - May 26, 2020
The ASX200 has produced some stunning numbers so far this year. Earlier this year it fell 36.4% from its peak of 7162 on February 20 to 4546 on March 23 in less than the space of a month, largely as a consequence of the Covid 19 epidemic. The fall was largely understandable, particularly given concerns that the marketed run too far, but since then - notwithstanding Australia's very good performance (so far) in terms of the pandemic - the ASX200 has rebounded by an astounding 27% as at May 26. See the chart below.
That still leaves us nearly 19% below the peak reached in February, but the rally so far has many analysts "scratching their heads" and may only make sense when we later look at things in the rear vision mirror. So, we remain grateful for the rally, but concerned about just how solid the fundamentals are, and urge caution - particularly given the number of day traders who have apparently invented this market.
Super Fund Performance - Covid 19 Impact - May 11, 2020
Recent data from Superratings has provided some indication of the damage wrought by Covid 19, and particularly the impact on equity markets earlier this year, on Australian super fund returns.
Most balanced super funds, and they represent the majority of funds, have a significant investment in the equity market(s) and this has seen most of them post-negative returns financial year-to-date. The chart below shows the performance of some of the leading balanced funds over the last 5 years - with investment returns ranging between -3% and -6.5%.
Covid-19 and Tax Residency - ATO flagging some welcome flexibility – May 5, 2020
The ATO has indicated that it may take a flexible approach to individuals who need to stay in Australia because of Covid 19 restrictions, when it comes to assessing their tax residency status.
Some comments in relation to individuals returning to Australia as a result of Covid 19 are included on the following pages and include the following FAQ;
Question: Will my tax residency for tax purposes change as a result of me returning to Australia due to COVID-19?
Answer: Whether you are a resident for tax purposes in Australia is a question of fact that requires consideration of your circumstances.
If you are here temporarily for some weeks or months because of COVID-19 then you will not become an Australian resident for tax purposes as long as you:
- usually live overseas permanently
- intend to return there as soon as you are able to.
However the tax residency issue may be more complicated if you:
- end up staying in Australia for a lengthy period
- do not plan to return to your country of residency when you are able to do so.
We appreciate that there will be unique situations with a range of potential tax outcomes. We will update and may revise this advice progressively as events unfold.
Additionally the Commissioner of taxation recently issued a statement to the tax profession which included the following comment:
"Also, if coping with COVID-19 is causing theoretical tax issues for you or for your clients, let us help. You don’t need to agonise over academic, technical arguments: contact us, and we’ll try our best to give pragmatic, practical advice. We’ve already done this on a range of issues, from central management and control, to SMSF residency issues, to expat tax issues."
In summary, much will obviously depend upon individual circumstances, but the ATO at least flagging that they intend to approach particular situations in a flexible and pragmatic fashion.
Early access to Superannuation – Coronavirus – April 17, 2020
Expats are probably aware that the government is now allowing early access to superannuation; up to $10,000 in the period to 1 July 2020, and a further $10,000 from July 2020 to 24 September 2020. Applications will be accepted through the ATO online services in myGov from April 20.
Expatriates may qualify for early access, because the government on this occasion has not tied access to eligibility for Australian social security. You will need to satisfy one or more of the following requirements:
Obviously, we believe that drawing on your superannuation should be a last resort, but can understand that it may provide a welcome fallback for many Australians still overseas. We can't however comment on how well the ATO system is going to manage, or otherwise, the evidentiary requirements around eligibility for expats - they will likely struggle simply to meet domestic demand.
Overseas Redundancy and Taxation - April 3, 2020
The coronavirus pandemic has resulted in an unprecedented level of dislocation for Australian expatriates, with many returning home after having broken service with Australian and overseas employers. It's important to remind individuals to seek appropriate tax advice regarding those payments, because the proper management of those payments can have a significant impact on how they are taxed in Australia.
Further details are available on our page devoted to the taxation of redundancy and separation payments, and I've repeated a paragraph below:
"Ensuring that these payments are made on a tax effective basis will often involve direct communications between a tax professional and an individual's employer - with a view to ensuring any payment relating to overseas service meets the ATO's requirements. Note that even if the employer does not agree to making a payment on a tax exempt basis it may be possible to pursue a later refund from the ATO if a separate payment has been arranged. Prior professional advice is absolutely recommended before the receipt of any redundancy related payment."
Refinancing your Australian Mortgage - March 27, 2020
The corona virus pandemic is currently having an enormous, negative impact on both jobs and the broader investment markets. One upside however is that the Reserve Bank has dropped interest rates to generational lows and this is being reflected in mortgage rates. Expats should review whether a refinancing of their Australian mortgage would be beneficial. Perhaps amongst all groups of Australians, expats tend to have the oldest, and often least competitive, mortgage arrangements.
Worth a look, and bear in mind that no cost attaches to having a mortgage broker review your arrangements.
Australia: Economic response to the coronavirus - March 23, 2020
Australian expatriates will be aware that the Australian government has announced a series of measures intended to protect individuals and the economy from the impact of the coronavirus.
Thus far, we have seen no measures that would have a direct or indirect impact on expatriates, although it could be expected that the government might seek to introduce a greater level of flexibility around payments into the tax system to alleviate cash flow issues - and this might result in both resident and non-resident Australians having some greater time to pay any outstanding tax bills. But there has been no official word in this regard, nor any announcements that would lead us to suggest that some recent changes that have impacted expatriates, such as removing the CGT main residence exemption, might be delayed.
On March 17, DFAT published the following advice for Australians overseas.
"We now advise all Australians to reconsider your need for overseas travel at this time. If you’re already overseas and wish to return to Australia, we recommend you do so as soon as possible by commercial means.
Regardless of your destination, age or health, if your overseas travel is not essential, consider carefully whether now is the right time.
As more countries close their borders or introduce travel restrictions, overseas travel is becoming more complex and difficult. You may not be able to return to Australia when you had planned to. Consider whether you have access to health care and support systems if you get sick while overseas. If you decide to return to Australia, do so as soon as possible. Commercial options may become less available."
Coronavirus: Implications and observations - March 17, 2020
Everyone will be heartily sick of even the mention of the Coronavirus epidemic, but unfortunately the process is just starting. We would just make a couple of short observations at the present time that might be interesting to expatriates.
Real Estate: We have just updated our charts showing changes in real estate prices across a major Australian capital cities, based on figures released today from the ABS. They show significant price increases in the major capital cities, particularly Melbourne and Sydney, but these should be viewed as simply historic curiosities. Sometimes, significant retreats on the equities market lead to a bump up in real estate prices, but these are unusual times and we believe the market will show significant falls in the next 3 to 6 months. Data will be inconsistent, and the market will become very shallow, with potential sellers withdrawing from the market unless there are no other choices available.
Tax Changes: The Government has announced a series of tax changes which are intended to support local small businesses "survive" during what will be a very difficult period. These include instant asset write-offs and tax refunds for small businesses based upon the amount of wages and tax paid in the first and second quarters of 2020. These seem somewhat misplaced because the major issue confronting these businesses is cash flow, or a lack of it, and the Government's measures require the payment of tax before being reimbursed weeks or months later. No changes have been made or flagged which would appear to have a significant impact in terms of expatriates at this stage.
I would just mention, for those expatriates who are still considering whether they should relocate their families to Australia during this period, that this can often happen without affecting your tax residency status, subject to receiving prior professional advice.
Australian Super Funds generate very strong earnings in 2019 - January 18, 2020
Australian super funds, and more particularly "growth" funds, delivered very strong returns during the course of 2019. Consultants, Chant West, report that growth orientated super funds delivered an average return of 14.7% during the course of 2019.
In this context, Chant West defines growth funds as those that have between 61% and 80% allocated to growth assets - such as domestic and Australian equities - and that includes many super funds marketed as "balanced funds". Balanced funds tend to be the default option for many superannuation investors and include the majority of investment funds.
These are exceptional returns - and don't represent the norm - but nevertheless they illustrate why some continuing exposure to Australian superannuation should be considered by expats - and particularly by long term expatriates.
Discriminatory Main Residence CGT Legislation becomes Law - December 29, 2019
On Wednesday, October 23 the Assistant Treasurer, Michael Sukkar, reintroduced legislation to:
"remove the entitlement to the CGT main residence exemption for foreign residents other than where certain life events occur during the period that a person is a foreign resident where that period is six years or less"
The original Bill, which sought to deny the CGT main residence exemption to non-residents, including Australian expatriates, officially lapsed on July 1, 2019. The fact that the Morrison Government re-introduced the legislation removes any suggestion that extending the legislation to Australian expatriates, rather than just foreign investors, was a mistake or "unintended consequence".
The new Bill passed the House of Representatives on Wednesday, November 27, the Senate on December 5 and received Royal assent on December 15. Consequently, many expatriates will be denied the ability to claim the CGT main residence exemption, in part or in full, from July 1, 2020.
The Government's dogged pursuit of a this policy, which treats Australian citizens differently depending on where they are resident, simply because one pursues job opportunities overseas rather than domestically, is just inexplicable. The legislation should have been confined to foreign investors in Australian real estate, not to citizens and permanent residents. As a member of the Australian Tax Institute was quoted as saying in the media, "There is no legitimate policy reason for denying Australian citizens the CGT main residence exemption in these circumstances."
What is even more inexplicable is that the Labor opposition supported the new legislation on the basis that, "The original measure, as part of the 2017 budget, had some flaws, including its potential impact on expats and New Zealanders living in Australia. Labor is glad the flaws will now be fixed. This is a good measure that provides important revenue for the budget." Consequently, Labor are happy to protect expatriates on assignment in Australia but not Australian citizens on assignment overseas!
The Government's approach is possibly a reflection of the fact that the entire extent of the Prime Minister, Treasurer and Assistant Treasurer's overseas work experience appears limited to a two-year assignment by the Prime Minister in New Zealand twenty years ago. In any event, we summarise the new legislation in more detail on our CGT main residence exemption page. We stress that expats impacted by the legislation should carefully consider obtaining professional advice regarding the precise impact and options available - as soon as practicable.
We continue to take the view that all the Australian expatriates consider expressing their displeasure for these intended changes either through direct contact with the Prime Minister's office, or Treasurer's office, or more practically through the various Australian Chambers of Commerce. At the present time, however, the Government appears immune to reasonable discussion and it might be appropriate for Australian expatriate organisations to immediately withdraw hospitality and support to visiting members of the Government until there is a sense that the Government is prepared to explain why a discriminatory approach to expatriates is fair and reasonable.
RBA confirms: Australian banks still (far) too expensive for International money transfers - December 11, 2019
In an address to a Sydney conference on December 10, the Governor of the Reserve Bank, Philip Lowe, confirmed our previous advice, and the personal experience of many expatriates, when he indicated:
"The main results are summarised in this graph (Graph 6 below). In nearly every case, the major banks are more expensive than the digital MTOs. For the major banks, the average mark-up over the wholesale exchange rate is around 5½ per cent, versus about 1 per cent for the digital money transfer operators (MTOs)."
In the absence of special circumstances, for example access to commercial rates, expatriates will normally be better placed - both in terms of fees and exchange rates - using specialist foreign currency transfer companies rather than Australian banks, and should "shop around" - subject to ensuring that any service has appropriate financial licences.
The Retirement Income Review - November 26, 2019
Many expats won't be aware of the fact that the Government has initiated a Retirement Income Review, which is scheduled to report by June 2020 - following a consultation period through until February 2020.
The review has been trumpeted as a fact-finding mission by the Treasurer, to lay the groundwork for further discussion around "future retirement options". The focus on facts means that the government will not be faced with potentially embarrassing recommendations - in a particularly sensitive area. The political sensitivity is illustrated by the fact that the Treasurer has already indicated that the "family home" would "never" form part of the pension assets test.
That (irrational) presumption may prove problematic if the conclusion reached is that demographic changes are placing the retirement system under significant financial pressure - since the other options are also unattractive, including deferral of access to superannuation until the pension age (now 67), increasing taxes on superannuation, reducing contributions and an inheritance tax.
The importance attaching to property becomes clear when looking at the distribution of wealth in Australia - see the chart below - we are severely overweight property with no end in sight, particularly given low interest rates. But if property continues to remains a "protected animal" for political reasons - despite the high direct and indirect costs it imposes on Australian society - then expats need to bear that in mind when it comes to looking at their portfolio of assets in Australia.
Retiring or Investing in Indonesia/Bali - perhaps time to thing again - September 20, 2019
We regularly provide advice to Australians both on assignment overseas, and looking to retire overseas, whether permanently or for only part of the year. Over a number of years we have regularly advised against retirement into Indonesia. Indonesia is the world's most populous Muslim nation and has a long history of tolerance and moderation, but recent events have suggested that a very much less tolerant environment may be developing.
Now there is news that the Indonesian parliament is in the process of passing a revised criminal code - which would have application to foreign residents and visitors - prohibiting the following and carrying very significant penalties:
- adultery or sex outside of marriage, encompassing all same-sex sexual relations, with charges only proceeding following a complaint by a spouse, child or parent;
- cohabitation outside of marriage, with charges only proceeding following a complaint by a spouse, child or parent;
- 'indecent acts' carried out in public, by force or published;
- insulting the President, Vice President, religion, state institutions and symbols (such as, the flag, and national anthem);
- subverting the national ideology Pancasila.
In countries such as Indonesia, it's always a question of how much of this law will be applied in practice - particularly in environment such as Bali, which are not Muslim. However, if misused they potentially provide police and other officials with significant leverage against foreign residents and any drift towards "Sharia law" should be a concern - both in terms of individual rights and the legal enforceability of property rights.
Despite the charms of Bali and many other parts of Indonesia, our advice is to consider very carefully any long-term commitment to retirement in the country, or indeed any commercial investment in tourism or hospitality.
Australian Management – "thy name is parochial" - September 14, 2019
From the date that this website was established, over 15 years ago, we have been highlighting the parochial nature of Australian companies and their management when it comes to the employment of returning expatriates. Recent research commissioned by Advance, suggests that nothing has changed in the interim period, and that is perhaps why Australia's commercial engagement with the rest of the world, and particularly Asia, isn't what it should be.
Some the major survey results include:
- 73% of returning expatriates believe that Australian businesses are generally reluctant to hire Australians who worked overseas
- 83% of HR respondents "are reluctant or cautious about recommending returning expatriates for Australian base roles", and
- 35% of HR respondents believe recruiting returned Australians is more difficult than it's worth.
Apart from suggesting that the status quo remains, this means that returning expatriates should not generally rely upon recruitment advisors or agencies, who will always take what they regard to be the "line of least resistance". Care, wherever possible, needs to be taken to maintain personal and professional networks in Australia - and you need to honestly factor in the career risk of accepting an international assignment when considering any offer.
Of course, not all companies or industries are the same, and some welcome and foster international experience. However, it sadly remains the case, despite all the intervening years, that the seasoned, internationally experienced expatriate is likely to be asked, as one of their first questions, "what is your network like in Melbourne and Sydney?" Rather than what is your network like in Hong Kong, New York and London, or focussing on what new experience they might be able to bring to an employer.?
Time to check your current Mortgage rate - July 10, 2019
Australian banks deny they do it on purpose, but they make an awful lot of their money from customers who remain in old or "legacy" products, which are often not competitive.
This is particularly the case with expatriates, who because they are outside the local market aren't as sensitive to interest rate changes - which have been significant very recently - and have a tendency to think that the re-financing of a mortgage would be "just too difficult". The latter is not correct, we assist in arranging mortgages on a very regular basis for expatriates and, although the process can be a bit more prolonged than if you were located in Australia, it can potentially save you a lot of money.
What is problematic is that most Australian banks, while they will provide mortgage finance in the right situation for expatriates, will not assist with re-financing. Their reasons aren't obvious, but the effect can be anti-competitive and lock expatriates into a mortgage. However, one major bank will consider refinancing, and we think it's in every expatriate's interest to test the current mortgage terms and conditions, and carefully consider whether a re-financing is worthwhile.
Within the website we provide indicative rates of interest on expatriate mortgages, and if you wish to discuss whether refinancing is available and worthwhile, an experienced mortgage broker is available to assist, without cost or commitment on your part.
HELP, VSL and TSL Debts - ATO Data Matching - Australians Overseas - July 10, 2019
On July 5, 2019 the ATO announced that a data matching program would obtain information from the Department of Home affairs (DHA) regarding individuals with existing HELP, VSL and TSL debts. The ATO will match this information, "... against ATO records and other data we hold to identify debtors that may not be meeting their registration lodgement and/or payment obligations."
The data items that will be obtained - and the suggestion is that up to 3 million individuals might be involved in this process - are:
- Identifying particulars for the HELP, VSL and TSL debtor population (name, date of birth, ATO/DHA identifiers).
- DHA overseas movement details (Passport number, passport country of issue, offshore status, departure and return dates) held on DHA system.
We believe that a substantial number of Australians overseas are still not meeting their commitments with respect to student loans, probably because of the perceived "hassle factor" and the relatively awkward nature of the process. Regardless, we strongly recommend that you ensure that you are meeting any requirements and avoid being approached by the ATO. For more details see our page on Repayment of Help Debts.
Tax and Super: What's Changing today? - July 1, 2019
A quick summary of some of the changes to super and tax applying from July 1, 2019.
- Australians born between January 1, 1954 and June 30, 1955 will now have to wait until they turn 66 before they can apply for the age pension. Eventually, the minimum age for access to the age pension will increase to 67 by July 1, 2023. Additionally, the minimum age at which you can normally access superannuation - your preservation age - is also increasing. Individuals turning 57 years of age from July 1, 2019 to June 30, 2020, will need to wait until they are aged 58 to access a super (including transition to retirement pensions). Remember, Australians resident overseas normally need to return and reside in Australia before being eligible for the age pension, unless living in a country with which Australia has an International social security agreement.
- Under the Government's "Protecting Your Super" package, super accounts that have been inactive for 16 months with a balance of less than $6000, will be transferred to the ATO. This move could capture a lot of younger expats, many of whom often have super (inefficiently) scattered across a number of accounts - and you could lose some life insurance cover as a result.
- Still no agreement regarding tax rates for 2019/2010 with the Government demanding that the opposition support all three phases of its tax program. And still no communication regarding whether the Government intends to withdraw or amend its proposal to withdraw the CGT main residence exemption from Australian citizens and permanent residents who are non-resident tax purposes.
Tax Residency in the news again - June 24, 2019
Another tax residency decision, made back in May 2019, has now received some wider press attention in Australia - largely because it is seen as rebutting the suggestion that someone can be a "tax resident of nowhere". The case is consistent with previous decisions and with the views expressed elsewhere in this website, that individuals seeking to break Australian tax residency need to ensure that they become a tax resident elsewhere in the world. In the absence of doing so they will remain an Australian tax resident.
To provide some background, the case involved an Australian citizen Alexander Handsley, an aircraft mechanic, who provided services in Vietnam, Turkey, China, Singapore and Malaysia, and spent the tax year in multiple locations for short periods, spending just 50 days in Australia. He had earlier separated with his wife and intended to establish a new life with his partner, a Filipina, but he had not applied for a long-term visa or residency status anywhere outside Australia.
Mr Handsley had sold what had been his family home in 2013, did not own a motor vehicle in Australia and did not have any place in Australia that he could call his own or to which he was entitled to accommodation - he had only local bank and superannuation accounts.
The Tribunal found that whilst Mr Handsley had done enough to break his residence ties with Australia, he had not managed to change his place of domicile nor had he managed to change his permanent place of abode, due to the fact that the multiple temporary places of abode were in different countries.
“That conclusion is the product of legal principles under which a person in transition between places of residence, having abandoned one but not yet done enough to take up another, is deemed to have retained his or her Australian domicile, and unless a permanent place of abode outside Australia has been established, the Australian domicile will dictate Australian residence for the purposes of the Assessment Acts,” said the AAT Deputy President, Mr O’Loughlin.
The case simply illustrates again that it is crucial the individuals obtain prior tax advice regarding residency before they leave Australia. Also bear in mind that there are an increasing number of disputes regarding residency, and also an increasing number of ATO residency audits. The ATO has apparently substantially increased the number of residency audits - conducting an astonishing 18,350 residency audits from July to December 2018, up from just 658 in 2015–16.
Occupations that need to give residency particular consideration are those that involve high, sustained mobility - such as marine, yacht, aircraft services, oil and minerals exploration and rig crews.
A win for expatriate Australians - Changes to Queensland Absentee Land Tax - June 11, 2019
The 2019 Queensland State Budget, delivered on June 11, announced a significant change to how the absentee land tax surcharge will apply - in particular it will cease to apply to Australian citizens and permanent residents. This brings the measure into line with other states and eliminates a substantial current cost to Australian expatriates with Queensland property and a barrier to investment in the state.
The quote below is an extract from the Budget papers:
"The Government will increase the land tax absentee surcharge rate from 1.5% to 2.0% from 2019-20. The application of the surcharge will also be widened to include foreign corporations and trustees of foreign trusts. These measures are estimated to raise $540 million over four years. The determination of absentee status for land tax purposes will also be adjusted so that Australian citizens and permanent residents are no longer classed as absentees and will be exempt from the absentee surcharge."