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Welcome to our first episode of the Expat Chat Podcast where we discuss the latest financial issues affecting Australian expats.

 

On the Expat Chat Podcast twice a month we will be releasing these updates on both our YouTube and Podcast (search for Aussie Expat Podcast) channels.

If you like the content make sure you let us know by hitting the thumbs up and subscribing as well as providing some feedback in the comments below.

In todays Expat Chat we discuss the following topics:

  • The Launch of the Expat Chat Podcast
  • How Does the Main Residence Exemption Changes Affect Australian Expats?
  • How Does the Proposed Negative Gearing Changes Affect Australian Expat Property Owners?
  • Importance of An Australian Expat Qualifying Their Tax Residency
  • Why its important to ensure that when handling your Australian expat tax affairs your 100% compliant

 

 

 

Expat Chat Ep 1 – Welcome to our First Episode of the Expat Chat Podcast

 

Brett Evans:                        Welcome everyone. 2019 and Atlas is bringing out a lot of new initiatives and one of them is certainly this. Joined by my colleague James Ridley is also the other director of the Atlas Wealth Management. You’ll either be hearing this on our podcast or via YouTube or Facebook. So, wherever you’re watching or listening to this, please make sure you like, follow and subscribe. So, we’ve got a lot planned for 2019. James, how are we doing?

James Ridley:                     Yeah. We do. I mean every month we’re aiming to put out a two Ask Atlas’ and that’s going to be a bit more of a topic about legislation updates. Obviously we’re going to open up a Q&A for Ask Atlas, and then we’re also going to be doing a bit of a monthly webinar with a specialist. Who are we actually talking too soon.

Brett Evans:                        This month on the 28th of February we’ve got Glen Heinz from Australia-America Tax Services-

James Ridley:                     That will be great.

Brett Evans:                        And he’s pretty much going to run through the top 10 problems that Aussie Expats face with U.S. tax. So, both of us know and so do of our clients how difficult U.S. taxes for them. And I think that’s the biggest thing that there is no commonality or no standard template that people follow. So, there’s a lot of misinformation out there. So, hopefully Glen can sort of guide us through all the trials and tribulations and put Aussie Expats in the U.S. onto a straight path.

James Ridley:                     That’s right. Provide a bit of clarity. I mean, there’s so many things that you just don’t know. You don’t know what you don’t know when you get over there. And hopefully it’s going to provide a bit of guidance and maybe ask questions that you didn’t even know you had.

Brett Evans:                        Definitely so. As James said, certainly with the Ask Atlas sessions two of those a month and virtually they’re going to be just chats. And we’ve got to talk about certain issues in case that is we’re dealing with on a weekly basis. But we’d like to implore everyone in out there and overseas, that do have questions. Certainly hit us up on via Facebook or YouTube channels or Twitter feeds. If you even want to use the #AskAtlas and that’ll help us, we can monitor social media and when those questions pop up, we’ll certainly be able to answer those questions.

 

How Does the Main Residence Exemption Changes Affect Australian Expats?

 

Brett Evans:                        So, obviously this is the first session of what will be a lot, so we don’t have any questions yet, but I think what we’re going to do today, certainly run through some of the key and major issues we’re dealing with right now. Top of that list would have to be the Main Residence Exemption.

James Ridley:                     That’s right. I would say as already, if you go to our blog you can see a lot of the feedback and ongoing guidance and everything that we provide on there. But, this retrospective draft piece of legislation which is the clock’s ticking, I mean say 30 June, 2019, that’s when they stated that as of that date, that’s when the repercussions start technically. And we haven’t received too much of an update but let’s divulge into it. Let’s pull it apart. And I would say find out why is so damaging.

Brett Evans:                        Well, I think the key point is the retrospective nature?

James Ridley:                     Yes.

Brett Evans:                        The fact that you could have been fortunate after purchase the house in Bondi for $500,000 in the mid ’90s. Yes, if you-

James Ridley:                     Wouldn’t that be nice.

Brett Evans:                        Good for you if you could get it. And if you were to move overseas, say 2015, you’ve held the property for the better part of sort of 20 years. And even though for whatever reason you sell that property when you’re overseas, even though you lived in it for 20 years as your principal place of residence, there’s no preservation of that tax status.

James Ridley:                     No, no.

Brett Evans:                        And essentially what it means is potentially, if this legislation does go through, you may pay capital gains tax all the way back to 1995 when you bought the house.

James Ridley:                     Exactly. And I mean, whats also not really clear and especially in the explanatory memorandums is, technically a former of main residence, it’s a different type of asset class to stay just a normal investment property. Now they’re saying that if we sell that property after 30th June 2019, yet we incur the CGT, we don’t get a partial main residence exemption at all, which is ridiculous. And then you’ve also got to factor in the fact that a non-resident marginal tax rates are higher. No tax free threshold, 32 and a half percent in the first dollar up to 90,000 dollars and again and again. And because it is technically a different asset class, and as we know, the CGT discount method, 50% CGT discount method went out the window 2012-

Brett Evans:                        2012. Yeah.

James Ridley:                     How does that correspond to the main residence and this main residence exception is a different asset class. Does that mean that non-residents that sell after this date are going to be able to discount up until 2012 and then, obviously no one going to be out of pocket 2012, 50% CGT discount off that period, but it’s just no clear guidance. It’s a completely different new asset class technically. And it’s hard to sort of provide guidance on that. And the fact is that we’re in February now-

Brett Evans:                        Mm-hmm (affirmative).

James Ridley:                     I think from memory, it was on the order of business wasn’t on last year when we had the leadership spill.

Brett Evans:                        That’s right. And now we’re in the problem too where obviously the Senate sat last week for three days. They’re not sitting in March. And then they resume sitting for only two days, 2nd and 3rd of April. And call me a conspiracy theorist, but the budget is also being handed down on the 2nd of April.

James Ridley:                     Yes, that’s right.

Brett Evans:                        Is the government going to try and slip this one through?

James Ridley:                     Yeah.

Brett Evans:                        While everyone’s focused on the budget?

James Ridley:                     Yeah.

Brett Evans:                        No one sees the bill goes through. And I think the hardest thing for Australian expats is they’re trying to make financial decisions without the benefit of knowing if this legislation is or isn’t coming into effect. So, they’re trying to work out whether they’re going to sell their property before 30th of June or not.

Brett Evans:                        I had a chat to a reporter from the Sydney Morning Herald last week.

James Ridley:                     Mm-hmm (affirmative).

Brett Evans:                        And that article that went out over the weekend was just talking to agent after agent, after agent saying how they’re just getting Australian expats from all over the place hitting them up.

Brett Evans:                        Engaging them to sell their property before 30th of June. So, I think Australian expats have taken a bit of better the devil, you know. As in, let’s act as if the legislation is coming in than not know. So, but to me there’s a million Australian Expats, this is the ramifications of this bill are massive, but there’s no conscious thought of how that’s going to affect them.

James Ridley:                     No.

Brett Evans:                        And we saw that when the Senate estimates hearing happened and we had the treasury officials come in-

James Ridley:                     Yes.

Brett Evans:                        And that was just a bumbling mess.

James Ridley:                     Oh was. I mean, even the Senator that was asking the questions, they don’t know what he’s asking-

Brett Evans:                        Exactly.

James Ridley:                     And the fact that, I can’t remember the individual’s name. He couldn’t even answer the questions.

Brett Evans:                        That’s right.

James Ridley:                     He said, “Listen take it under consultation we’ll review it and come back to you.” Obviously now coming back to us.

Brett Evans:                        That’s right.

James Ridley:                     But I mean, more on that point about a lot of Australian expats engaging agents right now, it’s a tough market. Sydney or Melbourne. I mean they’re two key examples. I mean, people would probably still wanting to cash in on these 2017 prices which isn’t the case right now.

Brett Evans:                        That’s right.

James Ridley:                     Had a consult with an individual earlier that, they had a bank valuation, the evaluation was valued quite high. They’re now speaking to agents and their estimates are coming in and probably 15% less than what they got this bank valuation back in 2017. And bank valuations are usually conservative-

Brett Evans:                        Conservative. That’s right.

James Ridley:                     So that’s even more concerning. So, you’ve got people or the flood gates are open and Australian Expats might be almost panicking a little bit. But it does make sense. I mean, one that they’re trying to cash in on the main residence exemption, obviously they’ve got that tax free capital gain period. So, it absolutely makes sense, but the fact that there’s just no clear guidance yet, it’s just, “What do you do?” “Do you just did you sell out and then you’ve accumulated that wealth tax free, put it into something else or just putt it in cash, whatever it might be.”

James Ridley:                     But obviously, we know how it’s going to be treated if they sneak it through at budget time, which they have done before in the past. They’ve put pieces of legislation through-

Brett Evans:                        All the time.

James Ridley:                     They love it.

Brett Evans:                        And also, I guess the other issue too is, I mean now with the property market in decline, you’ve got time on the market-

James Ridley:                     Mm-hmm (affirmative).

Brett Evans:                        Spreading out or depending on who you talk to between 40 and 60 days-

James Ridley:                     That’s right.

Brett Evans:                        So, if we look at 30 June come back 60 days, people have got almost two months to get their property ready and on the market and get a contract.

James Ridley:                     That’s right.

Brett Evans:                        Now-

James Ridley:                     You’re right. Sale contracts needs to be signed before the 30th of June. I mean you can settle-

Brett Evans:                        After.

James Ridley:                     That’s okay.

Brett Evans:                        But now we have the problem too where people are getting loans and not just Australian expats but even people after the Royal commission.

James Ridley:                     Lending restrictions.

Brett Evans:                        Lending restrictions. So what are the chances of you getting a contract on the 15th of June, and then the contract falling over because its 14 days-

James Ridley:                     That could get -.

Brett Evans:                        Exactly. And next thing you know on the 1st of July you wake up to an email from your agent saying the contracts falling through suddenly your whole tax status on your property has just changed.

James Ridley:                     Well, that’s right. And one other thing which I think hasn’t really been mentioned to too well in the market. I know there was an article in the financial review a few months ago that a lot of individuals that are doing private treaty sales now. So, it means we’re not actually finding out the true value of what that property probably sold for. It could be a lot less than what we think. So, there is a bit of a question mark on, “Yeah. We’re seeing these prices, we know its strong but how far has it actually dropped.” And are people willing to bite the bullet accept those prices and then move on.

Brett Evans:                        You know you have the clearance rates for auctions below 50% for everyone. So, with the 50% that haven’t sold-

James Ridley:                     Yes.

Brett Evans:                        Are they still sitting in the market expecting 2017 prices?

James Ridley:                     Exactly.

Brett Evans:                        And when they meet the market, I’ll get to see those prices drop again-

James Ridley:                     Yes.

Brett Evans:                        As those people would decide, “Okay, I can’t sell at auction now, no bidders, let’s go private treaty.” And then-

James Ridley:                     And then you just don’t know. I mean-

James Ridley:                     I could take it off the private market. They’re still dealing with the obviously people that were at the auction. But we we’ll never know the true reflection of that in the market value of that property.

Brett Evans:                        Here’s a common question I think and it came through on my email over the weekend from a client in Singapore-

James Ridley:                     Mm-hmm (affirmative).

Brett Evans:                        And thrown this scenario. He’s been overseas for longer than six years.

James Ridley:                     Yes.

Brett Evans:                        If he sells his property pre 30th of June, how is that treated?

James Ridley:                     Pre 30 of the June?

Brett Evans:                        Pre 30th of June. So he’s been overseas for say eight years-

James Ridley:                     Yes.

Brett Evans:                        Obviously the six year rule applies-

James Ridley:                     Yes. Up there.

Brett Evans:                        For those two years up until if he sells on the 30th of June, how was that treated from a tax point of view?

James Ridley:                     Yeah. Was it before 30th of June, 2019 then technically he’s treated like a normal Australian tax resident. You get the partial main residence exemption on the six year rule. Obviously two years. That’s always going to attract capital gains tax. But what’s not understood there is that with the main residence technically another asset class, the two years, he’s not going to be able to discount the capital gain.

Brett Evans:                        That’s right.

James Ridley:                     So, he’ll pay tax on two years worth of the capital gain that is non-residence marginal tax rates, which will be quite high-

Brett Evans:                        Mm-hmm (affirmative).

James Ridley:                     And there’s no way really to get around that. But I mean it’s a common question. People are like, “Okay, I’ve rented out past the six year rule. Yes you’re going to pay capital gains tax like the rest of us. That’s normal.” But I guess also another question is if people choose to not sell their property, they hold onto it past this 30th of June 2019 rule and then they return to Australia and sell it. Then does that just mean that they’re still captured under the old rules? I mean they’re still under the normal main residence exemption. Yes. I’ve rented out that property for 10 years. I’ve owned for 15. I’ve used up that 16, six year rule will going to attract capital gains tax.

James Ridley:                     Technically this is the main residence, different asset class. So, you’d almost want to know whether it’s worth going out and speaking to an independent valuer. Do you need to get value to these different periods?

Brett Evans:                        Exactly.

James Ridley:                     No guidance, no one’s providing guidance on that at the moment.

Brett Evans:                        And I think that’s a big thing we always talk about with clients isn’t having those milestone events documented.

James Ridley:                     Yes.

Brett Evans:                        Because if there isn’t an argument with the ATO for example, you can say with clear conviction well the property was worth X when I became a non-resident was worth Y when I became a resident and all those sort of things. Certainly drive by appraisals from agents, “Don’t cut the mustard.” You actually need to have proper certified valuer to get it. I’ve heard mixed results of bank valuations, but look, “Something’s better than nothing.” But certainly if you want to make sure your eyes are dotted T crossed. I mean, getting a valuation on the property isn’t that expensive.

James Ridley:                     No.

Brett Evans:                        All depending on the value of the property you’re looking at, your looking at 4 to 800 bucks. But I’ll tell you what, if you’re arguing with the ATO, you’d spend that money every day under the sun.

James Ridley:                     Absolutely. And I mean, usually if it’s a case where you’re holding an investment property portfolio and you’re about to head overseas, yes, you should get a value in it then because it will be cheaper than trying to get that valued in 10 years time, that’s normal. Historical valuations always cost a lot more and I suppose it’s that also sleep at night factor in the sense that you know later in life when you sell it, you’ve got that piece of paper that was set. It says the value of that when you left-

Brett Evans:                        Everything’s demarcated accordingly-

James Ridley:                     And you’ve crystallised capital gain that you’ve accrued on the property while a normal tax resident. That way you can apply the old legislation to it. Discounting the capital gain by 50% up until that date, anything after, obviously we can’t, that’s normal. But essentially, it is a sleep at night factor knowing exactly what you’re going to be paying at what dates technically. So, a big advocate for obviously independent valuation.

 

How Does the Proposed Negative Gearing Changes Affect Australian Expat Property Owners?

 

Brett Evans:                        Definitely. That leads me into the next topic got a lot to talk about is an article you wrote recently. Obviously Bill Shelton, has been very vocal on franking credits clearly, but also to negative gearing and all those sort of issues. In the article, you’re wrote, you talked about a bit about almost like a sleeping bullet with what he’s proposing in that in the past, Australian expats have relied upon running a property in negative cash flow accruing tax credits. They return to Australia and when they come back technically they don’t pay tax on their income for a number of years, depending how many. But under what Bill Shelton is talking about, that’s not the case.

James Ridley:                     No, no, no. So, at the moment, as we know, we can go overseas. We can negative gear a property through the teeth. We can accumulate these net income losses or tax credits as accounts refer them to as. And then later in life and come back if we still got to accumulate net income losses we can use that to offset wage income, which means you’ll have a nice tax refund first few years.

James Ridley:                     Now, with these new proposed legislative changes, they want to change negative gearing to only apply to newly constructed property. They haven’t announced the date. So who knows if that’s going to be retrospective. It’s question mark again. And essentially you can only use a new constructed property to obviously negative gear future wage income and then secondhand property, it can only be used to offset other investment income.

James Ridley:                     So, that means that if these piece of legislation goes through and you’ve got all these property developers targeting Australia expats, or people that are doing refurbishments or we have had individuals that have these massive property portfolios now, there’s not clear guidance on how they’re going to be treated. Yes. It’s saying, “Listen, we’re going to introduce it as of a certain date.” But they really need to be clear on how current property portfolio is going to be treated. Is that meaning that as of a certain date, if you buy a property after this date and if it’s completely newly constructed, 100%, you can negative to that against net income in the future against income. But, for all, it’s going to apply to current property portfolios.

James Ridley:                     Because again, it’s similar to what they want to do with their changes to superannuation. Obviously impacting retirees, franking credit policy, going after our wealth, which would relied on current legislation to build going forward, but then they make changes where it could affect a strategy that’s lasted for the last 10 to 15 years of the individual.

James Ridley:                     I’ve personally got clients that had these net income losses accumulating on large property portfolios and it’s great because one, we need to make sure when they come back, yes, they work for a few years, get those nice tax refunds. But again, if they introduced this piece of legislation and it’s retrospective, completely damaging. So, very ridiculous.

Brett Evans:                        Look, it is. I’m in I think that probably, the issue with what Shorten is talking about, it’s light on detail. Are we talking about retrospective on existing properties? Are we talking about, “Okay. If you bought an existing like a 20 year old house from this date on, you don’t get it. But if you owned it before then you do.” I mean there’s so many different issues there that come into play. There’s certainly fact Australian expats.

James Ridley:                     Absolutely.

Brett Evans:                        And I think combine that with the market coming down. I think Australian expats have sort of always relied upon property as bit of a safe haven to repatriate their money too-

James Ridley:                     Exactly.

Brett Evans:                        But now you’ve got a falling market, you’ve got the tax situation changing, you’ve got all these things coming through-

James Ridley:                     Lending restrictions.

Brett Evans:                        Lending restrictions.

James Ridley:                     When know the big four, they’re not the biggest fans-

Brett Evans:                        No.

James Ridley:                     Of Australian expats anymore. Ideally, usually Australian expats are actually ideal clients. Big four, don’t like them. So it’s always good to use a mortgage broker to try and get that better interest rate. But you’re right. I mean the gates are slowly closing on, I suppose, not necessarily tax loopholes, but tax planning strategies that you can use over the long term especially with Australian Expats. I mean, I know a lot of property developers will be treading water a bit before all these changes because they’re like, “Okay, well who can we spruik these properties to now?” I know they’re obviously quite popular down in the CBDs, but the moment it’s just a big question mark again.

Brett Evans:                        And I think I’ve always joked about the LinkedIn indicator. I know when I’m getting sort of four to five connection requests a day from property developers and also to-

James Ridley:                     Buyers agents-

Brett Evans:                        Buyers agents. That’s right.

Brett Evans:                        That the market is coming down in they’re trying to flog stock.

James Ridley:                     Yes.

Brett Evans:                        So, that has been a big spike up six months ago, but even now, it’s coming through at a rate of knot. And I think that’s the biggest thing I see, “If you can’t sell the property, obviously they’re getting out trying to expand their network to try and get rid of it and you’re seeing commissions of 30 to 40,000 per property being offered.”

Brett Evans:                        And we’ve certainly seen people in the past being enticed by that and it’s only let him in one direction. People are buying properties at an inflated level and then when it comes time to sell them, they’re not worth anywhere near what they bought it at.

James Ridley:                     Not at all. And then obviously it’s usually a case where they’ve either been advised by the buyer’s agent to leverage out their property through the roof again, I’m talking in between 80 to 90% LVR, which is crazy. And then you’re trying to sell that property and you’re actually having to fork out more of your own cash to pay off the rest of the loan.

Brett Evans:                        That’s right.

James Ridley:                     So, they do put Australian expats or just individuals in those situations where can’t sell the property for years and years because you’ve got to wait until it turns positive again, whether it be from an income point of view or just being able to at least break even when they sell it. You’re right. I’ll say it again on LinkedIn, I’ve had the recent ads from all the buyer’s agents, mobs, trying to engage us and putting us through their own sales process. And then obviously that’s not what we do.

Brett Evans:                        No.

James Ridley:                     And when you hear about the commissions these individuals make, it’s ridiculous and it’s just not ethical.

Brett Evans:                        Certainly if you had a less scruples than we did, you’d be very tempted by these big cheques. But to me, I think, it’s almost developing a bit of a perfect storm because if they are trying to sell these inflated properties, to at too high a market combined with a falling market, combined with the possibility that you look, the Australian Expats will lose their tax benefits of having property back in Australia. You could be funding a property that’s worth three quarters of its value and getting no return at all.

James Ridley:                     Absolutely.

Brett Evans:                        So-

James Ridley:                     I mean, and you factoring the negative gearing, or the removal.

Brett Evans:                        The removal.

James Ridley:                     So, absolutely there’s almost no benefit there.

Brett Evans:                        And you sort of just shake your head and go, “Well, okay.”

James Ridley:                     There’s other options.

Brett Evans:                        Well look there. We both know there’s a lot of great options. I mean there’s options that rely upon a lot stronger tax incentives. Non-TAP assets for example. I mean, that’s there to encourage the billion and trillion dollar managed funds to invest in Australia. If the government were, heaven forbid to tinker with the non-TAP rules, you’d see a flood, an exodus of cash out of Australia.

James Ridley:                     Absolutely.

Brett Evans:                        And that’s what we always talk to clients about is don’t try and rely upon your wealth strategy hanging on one thin thread, make sure it’s part of a robust process that the government is less likely to tinker with. In saying that we never thought they’d do that with super.

James Ridley:                     No.

Brett Evans:                        No. Their hands are all over. But I think when you look at the global scale, Australian markets, 1.7% of the world market, so if we got to encourage that inbound investment from the overseas investors, the chance of them playing with that is pretty slim.

James Ridley:                     And just on that, I mean, you mentioned superannuation and I’m going to go back to what Labor has proposed and I don’t want to read just what we can put into super. I think the claw back to 75,000 non-concessional contributions right now, there’s that new piece of legislation, the catch-up concessional contributions, which is actually a really good-

Brett Evans:                        Great for Australian expats.

James Ridley:                     That’s what I mean. Great piece of legislation. Australian expats can use when they accumulate those overseas capital gains if they need to. And getting disposable wasn’t done or anything like that. But they looking at pulling the catch up as well, catch up concessional contributions and there’s rumours that they might even remove the personal deductible concessional contributions. So, if all these things go through, and Labor gets through, it’s very concerning. I mean, obviously a lot of financial planners will probably be doing those going through the process of looking at where the opportunities are for their clients going forward. But who knows what’s going to happen after these federal elections.

Brett Evans:                        And it seems strange to head in a direction to try to discourage people from putting more money into Super. I mean, sure the great days when Howard was around where it was go for gold. But it seems to me more so the Labor camp has got in their minds that the average super fund is a $10 million super fund. And are they, when the ATO released their numbers, there was only 10 super funds greater than 50 million. So, they’re talking about these big, big, mega super funds, these SMSFs. But in actual fact, when you look at the average numbers, it’s a lot lower than that.

James Ridley:                     Absolutely. And think the average SMSF isn’t over a million, it’s probably honestly ranging between 300 or maybe 800,000 and anything under that, I think it’s limited. You should actually have a SMSF-

Brett Evans:                        No, I agree.

James Ridley:                     Honestly, anything else, $500 wouldn’t even go near it just because the ongoing costs are ridiculous depending on what you’re doing. But that’s right. I mean, they’re targeting all these or they think everyone has these all their money in these huge SMSFs, but it’s not true at all. And the fact that they introducing legislation, which discourages to put money away for our retirement is ridiculous because it just means the long term effects are going to have more a negative impact on Centrelink-

Brett Evans:                        Reliance on the age pension, all these sort of things. And I don’t think that’s we’ve seen them sort of tinkering with the future fund as well-

James Ridley:                     Yes.

Brett Evans:                        Which… That’s another issue as well too because there’s an unfunded government pension liability that a lot of countries around the world are still trying to grapple with. I heard numbers the other day, something like in the UK, they just in private defined benefit type pension funds. I think the outstanding liability in the corporates was about 500 million pound. So a billion pound.

Brett Evans:                        So, we’ve got to think about how are we going to fund those sorts of things. But certainly pushing people back onto government services is not the answer. And that’s where I think  you and I deal with on a daily basis, the confusion with Australian expats. Can you or can you not contribute to super? I think I’ve heard every excuse under the sun as to why you can or can’t. But happy to go on the record today and say you can contribute to Super as long as it’s not an SMSF because then you have fail the active members test.

James Ridley:                     Central management and control.

Brett Evans:                        Central management and control. And if you’re running a retail or industry fund, you need to check with your individual fund. Some allow it, some don’t, but that’s more of an internal policy, not a legislative policies dictated by Canberra.

James Ridley:                     No, that’s right. And the old one kicks you out actually.

Brett Evans:                        Yes. I know we had that.

James Ridley:                     I’ve heard a few stories, but I’m essentially, you’re exactly right. I mean, there’s no piece of legislation usually stating that you can’t contribute toward retail super fund.  Obviously make sure it’s complying, they’re happy having a non-resident in there. But I mean, based on all the consults I’ve done, they usually hear these things from accountants which is unusual. And the accountant is most likely referring to a self managed super fund. They probably don’t say that in the email. They just say, “Yeah, you shouldn’t contribute Super while you’re overseas.” But the fact that people won’t contribute their Super for five, 10, 15 years because they’re scared to, it’s ridiculous.

James Ridley:                     You need obviously grow your retirement savings. Obviously you’ve got to make sure it’s relevant to your overall retirement strategy, whether you’re coming back to Australia retire whether you are retiring somewhere else-

Brett Evans:                        Spot on.

James Ridley:                     Because obviously, different countries are going to tax superannuation differently. We know that obviously at key example U.S.

Brett Evans:                        U.S. I was in there.

James Ridley:                     The IRS and then-

Brett Evans:                        Foreign grant or trust employee benefit trust.

James Ridley:                     That’s right. Exactly right. That there’s no sort of clear guidance there and even when you retire in the U.S., they’ll declare it as foreign source income, you have to report it. But it’s the same with the UK as well. I think you get, might get a 10% exemption there, then 90% is taxable. So, it just got to be careful where you’re going to retire. I’ve seen safe bet is actually retiring in Australia because after you fully retired, over ’60s, completely tax free.

Brett Evans:                        Tax free.

James Ridley:                     That’s great. But will be tax free for the time being.

Brett Evans:                        Yes.

James Ridley:                     That’s… Who knows.

Brett Evans:                        Fast, fast forward 20 years. And it could be a different situation. They’ve worked out, somebody’s way or excuse that they can tax people. So-

James Ridley:                     That’s right. Then maybe they’ll change the tax rate within it. But constantly changing. And I think that’s another thing I want to mention is that the red and yellow flags, the legislation, red, yellow flags are constantly changing for Australian expats and I mean it’s keeping your finger on the pulse to make sure you’re staying within those red and yellow flags. And again whether it’s investing in property, shares other items unit trusts, self managed super funds, all these things, they can catch you out.

James Ridley:                     And I mean, a key example would be, holding a self managed super fund when you go overseas, you’re a non-resident, you’ve done no research on residency rule and central management and control. And then you get audited five years later and the ATO audits you and finds that yes, the SMSF is non complying and the tax that you have to pay, it loses all its concessions. It’s taxed at the highest federal or highest marginal tax rate. Federal, I was going to reference the U.S. then-

Brett Evans:                        So straight up you lose 46%?

James Ridley:                     Yeah, absolutely-

Brett Evans:                        All the balance.

James Ridley:                     All the balance and on the income in the first year, they give you 12 months to wind up. If you don’t wind it up, they’ll do it again. And imagine how difficult that is for people holding property.

Brett Evans:                        You can’t sell a balcony off –

James Ridley:                     That’s right. So, I mean, there needs to be some clear guidance around that as well. But these are the issues the Australian Expats face-

Brett Evans:                        Mm-hmm (affirmative).

James Ridley:                     And it’s usually a case where you might read something online, you might hear something at a barbecue and then you’re like, “Oh, jeez”.

Brett Evans:                        Bar talk is always good. I mean someone in a bar in Shanghai or New York saying, “Oh yeah, I’ll do this. I’ll get to all this years ago, just do that.” And how many times we’ve met people who, we’ve had to go back and clean things up after-

James Ridley:                     That’s right. And want.

Brett Evans:                        That’s right. I mean, I think that’s the popularity of SMSF is great as long as you know that once you get on a plane, the whole premise behind having an SMSF completely changes from that point onwards.

James Ridley:                     Absolutely.

Brett Evans:                        And you can either maintain it, which you’d probably have to do if you’re having property or some sort of physical asset inside there.

James Ridley:                     There are avenues you can take. I mean, is that temporary absence rule-

Brett Evans:                        That’s the two years?

James Ridley:                     Yep. And depending on what you are, whether you can turn into a small APRA fund. Going down the path of changing directors if it’s a corporate trustee or all these things, but it’s not something that’s easy to do.

Brett Evans:                        No. And I think also too, we’ve heard in the past before and not to give accountants a bit of a slag, but it’s normally come from accountants that, “Oh yeah. Just to point your brother and sister or son and daughter as directors or trustees of your fund and let them run it.” But people have sort of always been controlling the strings in the background. And that to me is fraught with risk because of the ATO get hold of an email, a text message, anything that shows that you are controlling the fund overseas and you’re breaching CM&C. Then suddenly bang, 46 and a half off it goes. You’ve lost all those balances.

Brett Evans:                        So, we had case last year with a gentleman who just want to engage us to help him re-jig his Super fund-

James Ridley:                     Mm-hmm (affirmative).

Brett Evans:                        In terms of best way to do it. Him and his wife were the individual trustees. So, we change it to a corporate trustee. We made his son and daughter directors of that company. But then the next thing we went to, and I think this is what most Australian Expats don’t do, is as part of an SMSF, you have to have an investment strategy. And we did an incredibly detailed one so that his son and daughter could manage the SMSF portfolio from that investment strategy. They knew what to do if certain things happen. So, it can bever be argued that he was pulling the strings because they’re just going off the strategy that was outlined.

Brett Evans:                        Whereas on think, the big thing that we were worried about is if the ATO called up your son and daughter who were the trustees and said “Why did you do this and that.” They wouldn’t be able to answer it. And then suddenly, next thing you know, because people think, central management control, I’ll give my financial planner or stock broker or accountant authority to act in the account. And that is not the case. It’s that overarching type of control.

James Ridley:                     That’s exactly right. And I mean, there’s tests that the ATO use. I think one of the main tests is where’s 50% or more of the beneficial interest held. I mean, someone that’s managing it, looking after the SMSF, we’re three and a half million and they don’t have $1 in there. Why would they think that central management and control is being managed by that person when you’ve got no-

Brett Evans:                        No vested interest.

James Ridley:                     Exactly. And it’s an easy argument. It really is. I mean, and you’re right, all they need is an email thread. Obviously a log in, anything that they can use and everything’s digital these days so they can capture quite a lot. And it’s just not worth the risk losing essentially half the balance. So obviously something to steer clear with, but get professional tax advice on that.

 

Importance of An Australian Expat Qualifying Their Tax Residency

 

Brett Evans:                        People work so hard in the lead up to getting that balance, and when they’ve lost it all just because they’ve tried to be clever or it’s always… It’s never for a really pragmatic reason. It’s like, “Oh yeah, they won’t get caught or, I’d be fine.” But like we’ve seen, especially late last year, the ATO is going to extreme lengths to get the Australian expats. We saw that case with the gentleman in Bahrain-

James Ridley:                     Bahrain. Yes. Tax residency-

Brett Evans:                        And-

James Ridley:                     Huge.

Brett Evans:                        Just because he didn’t set up permanent domicile, he lived in a serviced apartment that he could live out his suitcase.

James Ridley:                     Yes. Right.

Brett Evans:                        They’ll go to great links and unfortunately I know they’ve got appeals going on again, but at the end of the day, it’s an expensive exercise to go through. And not had the proper framework in place to make the most of your time overseas.

James Ridley:                     That’s right. And I mean, Bahrain is an interesting case, but you can sort of see that there’s clear factors there that it was easy to challenge his residency status. I mean, like you said, he was in the serviced apartment, you could pack up his suitcase in 30 minutes and be in the next one. And I think that’s what his employer did. They actually had to keep changing to different apartments for some reason.

James Ridley:                     He was an engineer and then majority of his family was still home while having kids. They wanted to come over and then they were going to buy a place but I think they were going through bit of a rough patch as was actually at the end of the day-

Brett Evans:                        Divorce-

James Ridley:                     Divorce involved. So then it ended they only audited him for one tax year. That’s the year that they wanted, I think it was over 90,000 worth of tax back. But essentially it was clear because he hadn’t put down roots. He hadn’t established a permanent domicile. He’s travelling back and forth quite regularly. He was just in that obviously one of the GCC areas where he was on the tax free income and it was just easy for the ATO and it was clear and if when you look at it on the surface, the facts are that he wasn’t actually a non-resident.

Brett Evans:                        And it’s actually quite easy to distinguish and qualify yourself as a non resident. I always talk to clients about behaviours. Do your behaviours match that of an Australian resident or let’s say live in Dubai, a Dubai resident? If you’re sending money back to Australia to support a family and you’re travelling back all the time, would a normal Dubai resident be doing that? Whereas if you were living in Dubai, you had an apartment in your name, utility bills in your name. Certainly come back to Australia for holidays. Send money back for investments. Yes. And a normal Dubai resident would do that?

James Ridley:                     Yeah, of course.

Brett Evans:                        But it’s where people get caught out is their behaviours don’t match that of a resident and certainly the ATO come calling and say, “Well, we don’t think you’ve got a permanent position in that domicile in that jurisdiction.”

Brett Evans:                        Yes. You’ve got the resides test, the domicile test. The 183 day test. Most people know about that. So they tend to be caught by that. But it’s the resides and domicile test. That’s the big ones.

James Ridley:                     They catch everyone out. There’s a super test but that was superannuation but its mainly for government employees. That’s right. And I mean, you saw that recent article form I can’t-

Brett Evans:                        Accountants daily.

James Ridley:                     Board of taxation wants a review or they are reviewing residency at the moment. They put together their review reports submitted to the government and now we wait as to whether the government wants to do anything. Obviously clear guidance is needed.

Brett Evans:                        It’s a grey space. And it’s too grey. I think. Yes, the ATO does have that feedback on their website where people can go in and answer whether they’re resident and non-resident. And the amount of people I make going, “No, no, no. The ATO website says I’m not.” But when you actually start to talk about this situation, it gets black and white to more grey.

James Ridley:                     Absolutely.

Brett Evans:                        And that’s, I think that’s the biggest problem we’ve got with the legislation. I think in the article I said it’s 80 years old, so it’s not matching today. It doesn’t take into account travelling freelancers who are sort of bouncing around the digital nomads.

James Ridley:                     That’s right,

Brett Evans:                        It doesn’t take into account super yacht crews.

James Ridley:                     No.

Brett Evans:                        It doesn’t take into account people like deep sea divers on all rigs. They live on a barge when they’re overseas. So, I think as the workforce has evolved a lot in that time-

James Ridley:                     Absolutely.

Brett Evans:                        But the laws haven’t changed along with that. So, and it’s only going to get worse before it gets better. So, I think what the board talked about was going just straight to a 183 day rule, which would clean up so much compliance that goes along with everything.

Brett Evans:                        Remember there was a case about probably seven or eight years ago of an engineer who was working in Saudi and because it’s difficult to move money around Saudi, so he had his salary paid back to Australia which is not really recommended.

James Ridley:                     No, no.

Brett Evans:                        But anyway you can sort of argue the point that I didn’t want to have a bank account in Saudi. In Saudi all the accommodation is corporate. So, your employee puts you up in an apartment, so he couldn’t get a lease in his own name. But he’s only back in Australia for one week a year, and actually had a house at Mudgeraba and decided not to rent that house out because he figured he was only $50 a week better off, versus the wear and tear of it-

James Ridley:                     Jesus

Brett Evans:                        So-

James Ridley:                     You can see what way they are going to lean toward?

Brett Evans:                        Exactly. And essentially what the ATO rested their hat on, was this guy was a sporting shooter in Queensland and to hold a sporting shooters licence in Queensland, there’s a box that says, “You tick to say you’re a resident of Queensland.”

Brett Evans:                        So the ATO, even though this guy been overseas for seven years, came back to Australia one week a year-

James Ridley:                     And every point ticked the box.

Brett Evans:                        He did the right thing. Same visitor. It didn’t say resident returning, but because of the fact that his salary was being paid back in Australia, he wasn’t renting his house out and he ticked that box with the sporting shooters association.

James Ridley:                     Yeah okay-

Brett Evans:                        The ATO said you’re a resident, obviously stung with a big bill. Luckily in the administrative appeals tribunal, yes, they threw it out, which is great, because they say clearly this guy is back in Australia for one week a year. He’s behaviours that match that of a non-resident. Yes, it’s a bit different than he doesn’t rent the place out, but at that time too, don’t forget if you didn’t rent your house out when as a form PPR, you got indefinite MRE. And you can argue his way, but I’d imagine for probably one or two years fighting the ATO would have been incredibly stressful experience?

James Ridley:                     Absolutely. And it’s good that he obviously got the right legal advice and they pulled apart the raw facts and obviously it went in his favour. But I mean, imagine paying 7 years worth of tax on the tax free income and he’s probably had a good wicket on there.

Brett Evans:                        It was, he was on a very good wicket and I think the bill well into the six figures.

James Ridley:                     I mean he might not have that anymore in the asking for this sort of… So, I mean it’s good that it did go his way, but the fact that it came down to obviously there’s some clear facts that, “Yes, returning for a week, yet leaving his main residence untenanted, so he’s maintaining domicile technically.” And the gun license was it?

Brett Evans:                        Yeah.

James Ridley:                     So, the fact that that held how to anything, I’m shocked because I wouldn’t have thought that could hold anything in I suppose yet in the courts or anything like that.

Brett Evans:                        Obviously. It’s a legal declaration to the Queensland government. They had that licence or the Queensland police service anyway. So, I think they relied on legal declaration to have that licence to actually work against him.

Brett Evans:                        So it’s amazing. I know we see a lot of I guess apathy towards the incoming passenger cards. People used to take whatever the box, but what people don’t realise is that when you completed that form, people thought it just gets thrown away.

James Ridley:                     No.

Brett Evans:                        It actually went to a warehouse in Canberra and within two weeks that data was actually uploaded into a government portal that the immigration department sends a link. Everyone could dial into it and see. So, if you’re a resident or a so claiming to be a non-resident for tax purposes, but you tick the box resident returning, that is a legal declaration.

Brett Evans:                        And it was actually a deep sea diver in Perth that got caught these years ago where he kept ticking resident returning and the ATO actually use that as evidence in the court to say, “Here’s a declaration you told us, the federal government that you’re a resident returning so, therefore you’re a tax resident.”

James Ridley:                     So he wasn’t. His movement patterns weren’t of technically a foreign resident.

Brett Evans:                        No.

James Ridley:                     Returning as a visitor

James Ridley:                     On ATO. That’s what they refer to everyone as foreign resident, not non-resident as foreign resident. And that’s where I think a lot of people get confused.

Brett Evans:                        Confused.

James Ridley:                     I’ve had a lot of consults whereas I’m an Australian tax resident, but I’m a non-resident. So the foreign resident tax rates are going to apply to you and they sort of get shocked when it’s like, “Oh, I’m going to get taxed 32.5% on my rental income isn’t what you want.” But no, that’s really interesting that obviously he could have probably sought advice on what to tick on the returning card and that would have saved him thousands in tax.

Brett Evans:                        His case, it was very messy because he was on budget and it was a contractor and his employer wasn’t really forthcoming with the ATO in terms of what they thought his status was. So, sort of they disappeared in the background and left him to fight his own battle. And they also had a wife living in Perth, so his behaviours matched that of a resident. So, it wasn’t too hard to justify, but it was amazing how much precedence the ATO placed on that incoming passenger card in terms of, “What box you’re ticking.” And I think we also see this from time to time with Medicare, with Aussie Expats.

James Ridley:                     Absolutely.

Brett Evans:                        They think because you’re card expires in five years that they can still use it. And even when you go on the Medicare website, it actually says that you can use your Medicare card as a non- resident, but when you’re a non-resident, you’re not paying the Medicare levy.

James Ridley:                     No. You’re not funding it anymore.

Brett Evans:                        So, you’re not paying that funding so therefore the ATO turns around and says, “Well look, what are you?” “What’s going on here?” And that’s also caught a lot of people out as well to.

James Ridley:                     Yes. Absolutely.

Brett Evans:                        They hear from Medicare to say, “Yeah, you can use it.” But they don’t understand the tax implications on the other side, that can catch them out as well too sir.

James Ridley:                     Obviously the systems talk. I mean these days everyone’s usually got a my gov login. And if they’ve gone online and link the ATO service, the Mygov service and the Medicare service, then obviously if you’re using Medicare after five years, you really running the gauntlet-

Brett Evans:                        Yes-

James Ridley:                     To be honest.

Brett Evans:                        That’s right.

James Ridley:                     You’re better off just paying for an upfront consult. What it’s going to be 50 to $80 these day-

Brett Evans:                        Versus 30 or 20 or 30. Exactly. Right.

James Ridley:                     I mean essentially, it’s saving you that tax residency issue. And I think a lot of people forget that. And I’ve heard of cases where I’ve had consults and someone’s come back after being away for eight years. They’ve used Medicare and there’s no issues. But then they went back overseas and then their mother received a funny letter from Medicare about tax residency, which is unusual, and after that, he stayed overseas and hasn’t come back. But I mean the systems talk and everything’s shared these days. Data feeds, so it’s not worth running a risk when it comes to tax residency at all.

Brett Evans:                        Not at all. Actually, we had a client who was receiving I think family tax benefit B, that’s the non means tested one I think. And he went overseas for work. And wife and kids are still in Australia, but that they saw him leave and after two weeks they turned it off. So, he had actually called him up to say, “No, no, I haven’t left the country.” “I’m actually travelling for work.” And they turned it back on again. Just goes to show how connected all the dots are in terms of-

James Ridley:                     I’d actually thought it would take a lot longer.

Brett Evans:                        No, it’s two weeks. Because apparently… And I’ve heard mixed stories about this, you’re meant to tell them about any travels and those sort of things and he spoke to someone that said, “Oh, you should let us know next time.” He’s like, “Certainly will.” But I couldn’t believe it. After two weeks, this just got turned off. So I don’t know how they knew it was a work trip versus I’ll know trip or what-

James Ridley:                     How would you prove that?

 

Why its important to ensure that when handling your Australian expat tax affairs your 100% compliant

 

Brett Evans:                        So, it’s a bit it just goes to show there is a little of confusion that area still, and even though some government bodies are defined in their opinion, others are differing and you can be very confused by calling up one and expecting that answer to be cross-pollinated across to another government agency as well too. So, they’re got all their own different rules and regulations.

James Ridley:                     And I think if it’s a case where you know that your own situation is very grey, then you need to go and speak to a tax accountant in that field and possibly request a private ruling. And you’re going to have that reassurance knowing that yes, you’re a tax resident or you’re non-resident. If they deem you to be a tax resident, then you’re going to have a bit of a criteria on why you’re being deemed a tax resident. To what extent you need to make changes, obviously to your lifestyle and everything to make sure you are a non-resident – stay away.

James Ridley:                     Obviously, don’t maintain a previous main residence and keep a vacant because your maintaining your domicile. So, all these actual clear things that people just don’t think about. But essentially, especially if you’re getting those low tax rate environments or the tax free environments, then it might be beneficial to become non-resident and not come back for a very long time.

Brett Evans:                        I mean, that’s a great point because, we’ve always joked about when people are about to move overseas, they Google where the kids go to school, where your going to live, what the restaurants are like, all those fun things. But nine times out of 10, no one seeks advice.

James Ridley:                     No.

Brett Evans:                        And they’re jumping on a plane and I think it’s something like 18,156 people a month become, move overseas for a period of greater than 12 months. And I guarantee that probably 98% of those people would never have gone through the process.

James Ridley:                     No.

Brett Evans:                        But the biggest risk is on so many different levels, whether it’s obviously the proposed main residence exemption changes, whether it’s deemed disposal within shares and ETFs and managed funds. You can go through all these different asset classes and flying red flags, SMSFs. Amount of times people come to us a year after they go, “Wait a minute, I’ve just found out that I can’t have it SMSF and I’ve been overseas for a year.” Or some cases longer.

James Ridley:                     I mean, I’ve got a client right now that I’m going through the process of helping wind up and actually several and they’ve been overseas for longer than two years, so I think the gates were closing and it was only a matter of time. But no, you’re exactly right. Different asset classes, different rules. And what’s funny is that, I mean, yes. That large I suppose amount of people heading overseas every month, for a period of growth in 12 months they might mention it to their accountant if they have an accountant. And it’s common that those accountants don’t have any exposure to international matters. So, they’ll play it safe and they’ll say, “Listen, you’re still going to be a normal tax resident.” Don’t worry about it too” But that’s not usually the case at all.

Brett Evans:                        No.

James Ridley:                     And it’s, we’ve come across cases where an individual’s been overseas for two to three years, but there’s still deeming themselves to be normal tax resident.

Brett Evans:                        Normal residents. That’s right.

James Ridley:                     And then you go through the criteria, you go through what they’ve left behind and your shocked. A normal suburban little accountant has deemed them to still be an Australian tax resident because it could be the case where they might need to do a few amended tax returns because they paid tax when they didn’t need to. So I know, a little while ago, I think I told you about a referral onto another accountant and they helped get a huge tax return because I had obviously do an amended tax return, but that person’s case was very clear, very clear. There was no-

Brett Evans:                        Definitely non-resident.

James Ridley:                     Exactly. There was no, there was no black and whites, they just used your budget accountant and they continue using a budget account and the budget account didn’t know anything about international matters. So, they err on the side of caution, play it safe, but I mean obviously it was a good a tax refund for him.

Brett Evans:                        I had one where client of ours playing rugby in Europe. And he receives a number of payments, image rights, sponsorship, those sort of things. And his agent has sent the money back to Australia. And their Australia for I should say former Australian accountant because we’ve changed all that, which is good. Just deemed this as Australian income. So, even though they were non-residents, they’re back in Australia probably three weeks a year, so-

Brett Evans:                        Yes. He’s playing one of the French teams. And the accountant actually missed declared their income.

James Ridley:                     His income?

Brett Evans:                        Instead of that income being sourced overseas and paid overseas-

James Ridley:                     That was foreign income-

Brett Evans:                        Foreign income-

James Ridley:                     Actually get captured by the ATO.

Brett Evans:                        That’s right. So this accountant actually declared it as Australian income.

James Ridley:                     I want to imagine it would’ve been a small amount about that.

Brett Evans:                        Not at all, six figures. So, it’s one of things we talk to clients about is the importance of working with people who know and I call it match fit in doing what they’re doing. How many… Whether it’s an accountant, a mortgage broker, financial planner, does matter who it is. The first question they need to ask is,” How many other Australian expat clients do you have?” If you’re dealing with this on one case once a year, you would not be aware of all the other moving parts that happen on a daily, weekly, and monthly basis in our space.

James Ridley:                     No. You are not a specialist.

Brett Evans:                        No. And so many times we see people get caught out because they just relied upon that person’s good faith. They’ll say, “Okay, you obviously know what you’re talking about.” Instead of sort of sending that specialist or that a professional, “How much experience do you have and working with this space?” Because time and time again we come across situations where people are just being led down the garden path. When the smallest change done three years ago would have had far better results.

James Ridley:                     That’s right. I mean, touching back on the specialist that you’re just mentioning, I mean those are the type of individuals that we’re going to be working to this webinar.

Brett Evans:                        Yes, definitely.

James Ridley:                     Throughout the year. So I mean, ideally, once a month talking at a different individual from a different industry, ideally talking about issues that individual face when they go overseas. I mean, I can’t wait to talk to Jeremy Harper. Mortgages. Obviously relevant tax accountants and then obviously the legal side as well.

Brett Evans:                        With Naomi Seddon for Littler. And that’s an interesting one that Australian expats in other countries don’t tend to face as much, but Australian Expats in the U.S. face a lot. Where they’re going on an E3 and also what Washington’s decisions are on those changes with those type of visa classifications. Because we’ve heard different stories about them cracking down on E3’s and those sort of things.

Brett Evans:                        So, it’s going to be great to get someone in just to give us that coal face, “Okay, here’s what happens on a daily basis.” To me, obviously Darko with the Risk Insurance-

James Ridley:                     Risk Insurance.

Brett Evans:                        That’d be great because that is one that is… I think there’s a lot of  mis-truths around Risk Insurance just because a particular insurer knocks you back for insurance doesn’t mean it’s illegal.

Brett Evans:                        And I’ve heard that a couple of times in actual fact, it’s the insurer’s appetite for X amount of risk and there’s those sort of key cutoff points and key issues that sort of they look at time overseas, intentions returned to Australia, ties to Australia. There’s a lot that goes into it. Whereas, if you’re working with a risk advisor who hasn’t had a lot of experience with Australian Expat life insurance, TPD and so forth, they would assume I can’t get risk when actual fact it’s just that that particular insurer doesn’t want to Australian expat clients.

James Ridley:                     That’s right. I mean there is that many different types of insurance providers in Australia. So, I mean it’s obviously it’s why speaking to a specialist that obviously deal with the international matters daily and you’re right at the time frame do have the impact. Time overseas, intentions remaining overseas, when you’re coming back. All these factors paying as well as in where you’re residing.

Brett Evans:                        Yes.

James Ridley:                     So, I know a lot of insurance providers. They don’t like some countries.

Brett Evans:                        Yes.

James Ridley:                     Obviously, the DFAT 5 that’s-

Brett Evans:                        That’s right. No life insurance for people in Baghdad.

James Ridley:                     Exactly right. Essentially, I mean, a lot of these insurance providers, they still do provide Australian expats with great insurance, as well as income protection insurance.

Brett Evans:                        Exactly.

James Ridley:                     And it’s a shame that a lot of people, they have unfortunately exposed to those overseas type insurance bond products. And I’m not a specialist in them, but I haven’t heard great stories. I’m-

Brett Evans:                        Looking at end of the day, there’s a reason why there were stopped being used in Australia, in the UK back in the 80s and 90s. They’re an old, antiquated, expensive product that I’m sure during the time when financial services weren’t that sophisticated, it was probably the easiest way for someone to invest and sort of protect themselves.

James Ridley:                     That’s right.

Brett Evans:                        But now there’s a hundred other products out there that are cheaper, more liquid and more flexible, the list goes on. And now we’re sort of seeing the providers of those products are shrinking down from worldwide now down to sort of Asia and Middle East-

Brett Evans:                        And look the regulators are cracking down too. You know we’ve got Hong Kong regulators cracking down and I think when they did that was last year or year before, there was a 40% fall in the first month of these products being sold. I know in Dubai the same thing is occurring right now. They’re talking about capping commission-

James Ridley:                     Commission?

Brett Evans:                        Yes.

James Ridley:                     Yes. Was reading that article.

Brett Evans:                        So, people don’t realise all the embedded commissions behind each product.

James Ridley:                     Exactly.

Brett Evans:                        They can be investing in what they call shadow portfolios.

James Ridley:                     Yes.

Brett Evans:                        So, you’re actually paying two MER’s. There’s all sorts of smoke and mirrors behind it. And Australian expats don’t need it now. That’s the funny thing. Go and get proper product advice by a specialist and you won’t have all these issues. I mean, Google the term, Offshore IFA call cold, and you’ll have 45,000 pages on Google talking about people’s-

James Ridley:                     Call cold-

Brett Evans:                        Experiences with all these different mobs and you don’t need it.

James Ridley:                     No.

Brett Evans:                        There is no requirement to have that. And the great thing about sourcing Australian risk insurance is, especially if you intend to return back to Australia, it continues.

James Ridley:                     Exactly.

Brett Evans:                        You just change your residency status with the underwriter. And look whereas you’re not trying to, use offshore insurance model in Australia and there’s no flexibility for Australian Expats.

James Ridley:                     No. You’re right. And I think one, I suppose I’d call it a tax issue. I mean, a lot of these insurance products pay in from, and sometimes you’ll get actually a benefit paid out to you off to that term.

Brett Evans:                        That’s right.

James Ridley:                     Now, if you’re still holding that policy when you come back to Australia, and it’s one of those products where there’s no tax being paid within it itself. And once you received that payout, you go and take that to an accountant, the accountant is going to go, “I don’t know what to do here.” “How do I treat this?”

Brett Evans:                        And that’s unfortunate is there’s all the big platforms that everyone’s heard. The names like Generali and Friends Provident and all those sort of things. And they’ve sort of flown under the same radar as the Australian bond providers.

James Ridley:                     Yes.

Brett Evans:                        Whereas the difference with Australia is those bond providers pay tax to the ATO. Every week. Every month.

James Ridley:                     Yes.

Brett Evans:                        On your behalf. So, when you hold those bonds for 10 years, you’re entitled to tax free because it’s been paid on your behalf-

James Ridley:                     Paid on your behalf.

Brett Evans:                        Whereas the foreign bond providers, they say, “Oh, we’re the same too.” But they don’t pay a cracker to the ATO. So, at some point it might be next week, next month, next year, 10 years time with the way that legislation is changing and the government’s realising, “Wait a minute, we can get revenue from Australian expats.”

Brett Evans:                        Surely they’ve going to crack down on that. And what happens if you just signed up to a 10 year savings bond? And they changed the legislation? You’ve still got to go through and you’re in for two years. You got to hold that thing for eight years and that’s not to get the tax benefit. That’s so you don’t pay a penalty when you exit the product.

James Ridley:                     Yes.

Brett Evans:                        I had a case where a client tried to exit one, a 10 year bond, at five years. And he was going to be hit with, I think it was a 76% capital penalty.

Brett Evans:                        So, he’s got to pay tax on anyway and so it’s a whole mess. And that’s probably one of the biggest things and that’s why it’s great to do these sorts of things is just to get out there and just educate Australian expats on what’s going on. If you do get a phone call from these people, what do you say? Because I think that’s where 20 years ago, 30 years ago, your life with Australia from a financial perspective stopped.

James Ridley:                     Yes.

Brett Evans:                        As soon as you got on that plane you could do what you want carry on. But then when you came back to Australia, you transferred your money back and the Australian government, the ATO really had no idea what you were doing.

James Ridley:                     No.

Brett Evans:                        These days with all the data sharing agreements, whether it’s the common reporting standard-

James Ridley:                     FATCA.

Brett Evans:                        In FATCA with the U.S. The ATO knows more about you than you think they know.

James Ridley:                     Absolutely.

Brett Evans:                        If you’re Australian expat in Denmark and you’ve told your bank and you have to do these days that you’re an Australian citizen, you provide your Australian tax file number or what they call the TIN. The Tax Identification Number. Then every year they’ve got to pass that data of your bank accounts straight back the ATO.

James Ridley:                     On that topic, I’d had a consult the other day. Individually he didn’t update any information with the ATO or anything, but he’d been away for six months. He was staying over for a long time. He actually got a letter from his bank saying, “Listen, we’ve noticed that there’s been changes in your tax residency.” “Could you please, fill out this form within 30 days.” So, the fact that there obviously is a lot more data sharing than we realise. And that might be a case where maybe they’ve pulled out from his card, the passport card leaving Australia, who knows. But the fact that he hadn’t told the ATO yet, but he’s bank knew. So, something’s being shared there-

Brett Evans:                        That’s right.

James Ridley:                     And whether it’s a case. He’s obviously got his TFN on his Australian bank account and then obviously you’ve got a new really create a tin on his overseas bank account. That information had been shared by CRS and the picked up and then that’s why they said, “Listen, we noticed that your tax residency might have changed, therefore you are to updated or we’ll update it for you.”

Brett Evans:                        Interesting one for you. The only country, I think there’s about over a hundred countries and territories that have signed up to the CRS. Bahamas, BVI, Lichtenstein, all these countries, but the only country that hasn’t signed up to the CRS, United States. So, essentially United States is now a tax Haven for Australian Expats because they don’t have to share data back to the ATO, only if it’s on a request basis. And I need these like more criminal proceeds and all that of sort of-

James Ridley:                     Sort of does as I say not as I do.

Brett Evans:                        Exactly. It’s right. Because they were the first people championing this cause because that’s what FATCA is, their own version of CRS and then the bullied everyone into signing FATCA. But they’re like, “No, no we’re not going to sign CRS, because we don’t want to be obligated to it.”

James Ridley:                     Exactly.

Brett Evans:                        So, if you want to hide money, don’t put it in Panama, put it in the United States.

James Ridley:                     You don’t have to opt into it or anything.

Brett Evans:                        Exactly. That’s right. So, it’s a strange one and it’s… You can see why Australian expats get so confused. It’s changing so quickly. The world for Australian expats is becoming a very small space.

James Ridley:                     Yes.

Brett Evans:                        Gone are the days of where did James go and 10 years later you suddenly popped back on the radar. It’s almost like they’ve got a map and they just falling around the dots.

James Ridley:                     Exactly.

Brett Evans:                        I know exactly. Where the government agencies has as much criticism as they get for being an antiquated are not anymore, because they’ve realised there’s actually a revenue benefit for them being on the money-

James Ridley:                     Absolutely. Tax evasion-

Brett Evans:                        Tax evasion. They can chase all this money obviously operation Wickenby, I don’t know how many hundreds of millions of dollars they got out of that. But it’s not going to get any better. Clients every other day said, “When’s the pressure getting from office?” It was like, “Never.”

James Ridley:                     Never.

Brett Evans:                        This is the new norm.

James Ridley:                     It’s getting worse.

Brett Evans:                        It is. And that’s why it’s incredibly important to do the right thing the right way.

James Ridley:                     Exactly.

Brett Evans:                        There’s no reason why you can’t go overseas and make money and invest in all these things. But just do it in the 2019 fashion. Not in the 2009 fashion or the 2000-

James Ridley:                     No, no.

Brett Evans:                        Fashion because I think, the world is changing a lot. And we’re seeing the governing bodies using Facebook data, all these other things to-

James Ridley:                     Point anything.

Brett Evans:                        Exactly to support their what the case is. And I think people just need to say, “Well, this is it.” So, it’s time to clean up. I know you had a case not long ago where I don’t know how many tax returns this guy had to do.

James Ridley:                     It’s 15-

Brett Evans:                        15?

James Ridley:                     15 years worth. A bit what was scary is he owned an apartment block in Noosa. Had done one rental property, rental income, no mortgage on it. So, obviously a wealthy individual, non-resident, obviously, rental income attracts marginal tax rates-

Brett Evans:                        That’s right.

James Ridley:                     32.5% percent. Obviously he’s-

Brett Evans:                        On the first dollar –

James Ridley:                     Yeah. On the first Dollar. His was obviously over 90,000. So we’re talking 37 and 45%. So, we’re talking hundreds of thousand dollars worth of tax, that needed to be paid there. And I mean he was just on the assumption, “Oh, I went overseas and I was no longer a tax resident, why should I have to pay tax on that income.” Australian sourced income, I mean strategies income pays tax to the ATO and then depending on where you are in the world might mean you’ll get a foreign tax credit for that income. As an example in the U.S. or wherever, like UK.

James Ridley:                     But essentially it’s just, putting your head in the sand and just ignoring it. And then usually it’s a case where if you repatriate, you come back, it’s you’re going to get a nasty letter.

James Ridley:                     That’s right. I mean… and I think, it’s amazing when we’ve met people like that and help them get through it. And you almost look at their face. It’s just like, it’s relief. They’ve had these burden over that.

Brett Evans:                        I remember chatting to a gentleman in Beijing a number of years ago and his wife sort of pushed him up to me and said, “Can you have a chat to him?” And I’m like, “Okay, what’s this about?” And they hadn’t done tax returns in six years. And he was just almost frozen by a fear of what would happen if he did it. And I said to him, “Look is it positive or negatively geared?” And he said negatively geared. I said, “Well, so you’ve been putting money in every month and you’re here.” I said so-

James Ridley:                     He’s got a accrued tax benefit-

James Ridley:                     I said, they actually owe you money. And the look in this guy’s face and the wife started crying. I’ll never forget it. The wife’s started crying. She was like, “You have no idea how much stress this has caused us for the last five years.”

Brett Evans:                        And the first thing we going to do is do these returns. And it’s misinformation is so important. That’s one of the reasons why trying to do this. All these different channels is to get out there to talk to Australian expats. And say, “Hey, you’ve heard X. It’s actually Y.”

James Ridley:                     For me, that’s another issue. The internet. I mean, you can google a bias for anything and there’s just so much grey out there. And I mean, again, that’s why we have I suppose a podcast like this where we can try and cut through a lot of the crap that’s out there.

Brett Evans:                        Exactly.

James Ridley:                     You can Google doctor, web MD, I’ve got cancer, whatever it might be.

Brett Evans:                        That’s right.

James Ridley:                     That’s not the case. It’s not the case at all. And you just need to speak to an individual that actually is a specialist.

Brett Evans:                        I think that the biggest problem that Australian expats find is they can find the information, but they don’t know how the dots join, then they can see this, they can see this, but how does that affect them? And the U.S. with superannuation is a classic example.

James Ridley:                     That’s right.

Brett Evans:                        We’re not even talking about PFIC. He’s Passive Foreign Investment Companies. Just talking at the high level with Foreign Grantor trusts versus Employee Benefits Trust.

James Ridley:                     Yes.

Brett Evans:                        And then there’s a lot of press, not press, but there’s a lot of articles out there by people saying, “No, you had to declare it all.” Then there’s a small fraction out there who are saying, “Oh, we can use this as a privatised social security.” Most people don’t have a high level of financial literacy. It might be MDs or doctors or engineers might be brilliant at what they do. But when it comes to understanding finances, they don’t actually have, a lot of experience behind it.

Brett Evans:                        So, they will blindly go with what they read and they read an article that says, “You don’t have to declare your superannuation to the IRS, because of this. And the go,” Okay. Well.” The guy looks legit and the IRS doesn’t care. They’ll still go after you whoever who you heard it from. So, I think that’s one of the big things we’re looking forward to getting these out there is really does bring in some home truths.

James Ridley:                     Yes absolutely.

Brett Evans:                        There’s a lot of information out there for Expats in general, but we’re bringing it down to what we do, specialise in Australian Expats. Bring it down into that special case. And then, just pretty much talk the honest truth.

James Ridley:                     Absolutely.

Brett Evans:                        Some of it is good, sometimes it’s bad. But it is the truth. And I think with the governments where they’re going, it’s just getting worse before it gets better.

James Ridley:                     Absolutely.

Brett Evans:                        People don’t realise that the Australian expat community would actually take up. I think it’s Canberra, Woolongong, Hobart and Darwin.

James Ridley:                     Geez, wow-

Brett Evans:                        So, it’s a big group out there, and to me, they’re not taken seriously enough.

James Ridley:                     No.

Brett Evans:                        No. So-

James Ridley:                     It’d be interesting to get some statistics actually from the Expat insights survey-

Brett Evans:                        Yes. Yes. That’s actually another that I want to talk about as well too was right now coinciding with Australia day on the 26th of January, we launched our Expat insights survey, we did the same survey last year. We had 1,774 people from 65 countries. We’re about three weeks into it now and we’ve had almost 1,300 people from 80 countries.

James Ridley:                     Amazing.

Brett Evans:                        We’re running this until the 31st of May. So, jump on our website. Have a look under new survey, under the section, the menus there, love to get everyone’s responses and feedback. Essentially the survey serves two purposes. Well actually three purposes. The first purpose is, it gives us the coal face, feedback from Australian expats in different countries as to from a family point of view, from a career point of view, from a finances point of view, from a lifestyle point of view. Is it a good place to move to or not. In the past, Australian expats have normally found that out after they moved there.

James Ridley:                     Yeah, of course.

Brett Evans:                        So, that information, we aggregate the data and talk about specific countries and regions, then also too Australian expats or already overseas looking to relocate to another country. They don’t know to, they’re going from New York to Dubai, their experiences in New York, not Dubai.

Brett Evans:                        So, what we’re trying to do is just make that process as informative as possible. And lastly, and this is starting off what we talked about with the main residence exemption and just how there’s such a lack of understanding by Canberra of who an Australian Expat is. We’re able to get this done together and show Canberra.

James Ridley:                     Absolutely.

Brett Evans:                        We’re not showing them people’s IP addresses or anything.

James Ridley:                     No, no.

Brett Evans:                        We would just sort of talked about-

James Ridley:                     The types.

Brett Evans:                        Exactly. I mean there’s a misconception misconceived idea in Canberra that the average Australian expat is a C suite executive earning $1 million a year. And in actual fact, sort of almost remember the numbers from last year, I think 22% or 23% of respondents were teachers. And then just behind that was nurses and health. And behind that was hospitality. So, the vast majority aren’t high-flying Australian Expats with packages.

Brett Evans:                        There are actually people that the government always talks about hardworking Australians. They’re the hardworking Australian. They just happen to live overseas-

James Ridley:                     That’s the criteria.

Brett Evans:                        Exactly. So the more people that do participate in the survey I guess the more seriously, Canberra has to take them.

James Ridley:                     And we’re going with the raw data itself, we’re going to be putting it together and-

Brett Evans:                        So eventually what we’re going to do is three things with it. So the first thing will be on our website, we’ll have some country guides.

James Ridley:                     Yes.

Brett Evans:                        So it’ll run through, “Is this a good place to work, as a good place to raise a family?” From our point of view, we have to have a minimum number of respondents in that country or city to make the-

James Ridley:                     Sample size-

Brett Evans:                        To make the sample size big enough. And obviously if we have two respondents, then it’s not really indicative of what would that place.

James Ridley:                     No.

Brett Evans:                        The second thing is using the guides more so from Canberra’s point of view-

James Ridley:                     Mm-hmm (affirmative).

Brett Evans:                        But also to from an Australian expats point of view because Expats by virtue and look at our client base, I call them satellites, they’re always sort of orbiting the planet. And yes, Google is great for researching, moving to a different country, but more often than not, you don’t actually have comments from Australia expats in that country.

James Ridley:                     No.

Brett Evans:                        Facebook groups as certainly going to some way to helping them. But in terms of combining that feedback with the numbers, what is the average income of an Australian expat in that country? Is the work environment better than Australia? Those are big things as well. Certainly, using information to lobby Canberra. That’s the biggest thing.

James Ridley:                     Awesome.

Brett Evans:                        We need to tell Canberra that the preconceived ideas of an Australian expat is completely wrong. They’re not all earning $1 million, they’re not high-flying executives. To me, the biggest one we look at is always a nurse might move to Saudi Arabia, still on the same income she was in Australia, but she’s able to save more because she’s not paying tax in Saudi Arabia-

James Ridley:                     Tax free income.

Brett Evans:                        But it doesn’t mean she’s earning a squillion dollars.

James Ridley:                     No. Not at all.

Brett Evans:                        And that’s the thing I think we need to get around with Canberra as really changed that conceived idea that, “Oh, we’ll make these tax changes and they can afford it.” Because they can’t-

James Ridley:                     That mentality. Exactly. Right.

Brett Evans:                        They can’t so. So, if you haven’t already done it, please, if you could fill out the survey, that’d be great. As I say, just go to our actual, have a box on the front page on our homepage. To scroll down a bit, you’ll see a lot at say start survey. The website is www.atlaswealth.com.au. So, certainly love as much feedback as possible because its a weight of numbers thing. If the number is too small, Canberra won’t take it seriously.

James Ridley:                     No.

Brett Evans:                        And also too, the data’s not relevant enough to the general population.

James Ridley:                     We need the sample size.

Brett Evans:                        Exactly .

James Ridley:                     We do. So obviously get on there filled out, be as honest as you can. Obviously you can do it anonymously as well.

Brett Evans:                        Definitely.

James Ridley:                     And if you want a report, then you can also enter your email at the end as well.

Brett Evans:                        Exactly.

James Ridley:                     Ideally sending that through to parliament will be great.

Brett Evans:                        It’d be good. It needs to be done. It hasn’t been done in the past,  last year survey was, from what we know, the largest survey of Australian Expats.

James Ridley:                     Yes.

Brett Evans:                        Ever done.

James Ridley:                     Yep.

Brett Evans:                        But this year instead of 1700, we want double and triple up-

James Ridley:                     Absolutely.

Brett Evans:                        Bigger the numbers the better. So, definitely everyone support will be greatly appreciated and doing that.

James Ridley:                     Yes. Absolutely. As far as we round out today’s podcast, what are the Expats called? I suppose just the U.S. isn’t towards the end of the month.

Brett Evans:                        Yes.

James Ridley:                     Webinar with Glenn Hines.

Brett Evans:                        And then next month, I think we’ve got Darko talking about risk insurance.

James Ridley:                     Yes.

Brett Evans:                        And then after that we’ve got-

James Ridley:                     The budget update.

Brett Evans:                        The budget update.

James Ridley:                     Absolutely.

Brett Evans:                        So-

James Ridley:                     Huge.

Brett Evans:                        Budgets coming forward to April, 2nd of April. So, Australian Expats always low hanging fruit in that case. So-

James Ridley:                     Yes.

Brett Evans:                        They were already expecting with fingers in our ears. What’s going to happen. But we’ll obviously, usually they’re the day after the budget, we’ll run a live webinar, talk about the key issues.

James Ridley:                     Q&A.

Brett Evans:                        So as you can see, we’ve got a lot on. I’ve actually thought of a good title. I mean, these chats, let’s call them Expat Chats because that’s what they are.

James Ridley:                     They are. Absolutely.

Brett Evans:                        Certainly by all means tag us with hashtag #AskAtlas or send us an email, [email protected] If you’ve got any questions you’d like to be raised-

James Ridley:                     Mm-hmm (affirmative).

Brett Evans:                        From the next one we’ll do two of these a month.

James Ridley:                     Mm-hmm (affirmative).

Brett Evans:                        And so keep things current and by all means, if you listen to some of the podcasts, please hit subscribe. Please also give us a rating. With no ratings, no one’s going to find us. So, help your fellow Australian expats out by doing it. If you’re watching this on YouTube or Facebook, by all means please, like and subscribe and share. The best thing about Atlas is we couldn’t exist in today by doing what we do today, 20 years ago.

James Ridley:                     No.

Brett Evans:                        Because digital media and those communication tools weren’t there. So-

James Ridley:                     Or connect us.

Brett Evans:                        Exactly right. But if we look at the information you put out on a weekly basis, it is shared, which is great. And I guess that big global community that Australian Expats are. If we can all keep sharing this information, there’s no miss truths. There’s no innuendos, there’s no urban myths. Everyone’s getting educated, which is our main ethos. Educate, educate, educate. Because then you make smart decisions after that.

James Ridley:                     So, absolutely. I think a lot of Australian expats always concerned that their issue is rare or unique. It’s not.

Brett Evans:                        It’s not.

James Ridley:                     It’s not. And usually if it’s a case when you’re on these live webinars, the asking your question, if you sit back and then you’ll probably find the question will actually get asked before you even ask it. A lot of Australian expats doesn’t matter where you are, they’re usually facing the same issues.

Brett Evans:                        Yes.

James Ridley:                     So, you are technically… You’re a collective community.

Brett Evans:                        Exactly.

James Ridley:                     Global community that has the exact same issues and whether you’re going to ask the question, some will.

Brett Evans:                        Definitely so. I know people quite often a little bit nervous about asking questions in the live forum. So as I said, if you’ve got any questions that if you like us to discuss them or in the podcast or in these chats or on forum, by all means, send us an email at [email protected]

James Ridley:                     Sounds great.

Brett Evans:                        Fantastic. Thanks James. And we’ll see you guys on the next Expats chats.

James Ridley:                     See you guys.

Brett Evans:                        Thanks.

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