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Expat Chat Ep 2 – Expat Tax Residency, Transferring Money, Advice

Welcome to our second episode of the #Expatchat Podcast where we discuss the latest financial issues affecting Australian expats.

 

In today’s chat we discuss:

  • The recent case of an Australian expat beating the ATO in a case before the Administrative Appeals Tribunal (AAT) that would have been a disaster for Australian expat tax residency everywhere if the appeal failed;
  • The importance of obtaining professional Australian expat tax and financial advice and working with a specialist financial adviser
  • Transferring a foreign pension to an Australian superannuation account
  • Qualifying as a non-resident for expat tax residency purposes
  • Do you get get taxed when you transfer money back to Australia?
  • Can you reset your expat tax residency?
  • Why you need to obtain Australian expat financial advice before you move overseas
  • Our Pre-Departure Review service for Australian expats

We also run through a number of questions that Australian expats sent into us as well as discussing a number of client case studies that we’re working on the moment.

 

 

 

Expat Chat Ep 2 – Wins For Expat Tax Residency And Expat Q&A

 

Brett Evans:                        Welcome to episode two of Expat Chat. We received a lot of good commentary and a lot of good feedback from the first episode, so we’re looking forward to really ramping this up and setting up quite a bit of content that’s just going to help you make informed decisions. One thing that occurred to me, James, is those who are watching it on YouTube, get the little disclaimers that pop up at the bottom.

James Ridley:                     Yes.

Brett Evans:                        But those who-

James Ridley:                     Are listening.

Brett Evans:                        Are listening.

James Ridley:                     Nothing.

Brett Evans:                        Don’t see the pop-ups.

James Ridley:                     No.

Brett Evans:                        So, just for those who are listening on the podcast, we do need to give you the disclosure to say that this information is general in nature.

James Ridley:                     Yes, that’s right.

Brett Evans:                        And you should not use it as personal advice. Definitely speak to a licenced financial planner and/or accountant.

James Ridley:                     Yes.

Brett Evans:                        Should you have any questions.

James Ridley:                     Absolutely.

Brett Evans:                        So, episode two, what are we talking about today?

James Ridley:                     Well, today we’re going to talk about, I suppose, first off, in the news last week, a huge decision came out from the Australian court about overruling the ATO.

Brett Evans:                        It’s the Harding case.

James Ridley:                     Yes.

Brett Evans:                        Yep.

James Ridley:                     Expat tax residency, Bahrain. And then also, just briefly, touching base on, I suppose, Board of Taxation. They want to overhaul the expat tax residency rules just because that piece of legislation is from back in 1936.

Brett Evans:                        Yep.

James Ridley:                     So ridiculous in this day and age.

Brett Evans:                        Times have changed, and it’s amazing these days when you look at the way the legislation works.

James Ridley:                     Yeah.

Brett Evans:                        I would hazard a guess to say 70% of the professions of people actually working these days as an expat, didn’t exist back in 1936.

James Ridley:                     Absolutely. I mean it’s all about global mobility these days and back then that wasn’t really a big thing on the list.

Brett Evans:                        That’s right.

James Ridley:                     I suppose some other things that we’ll briefly touch base on. I’ve got a few questions that a few people have submitted.

Brett Evans:                        Okay.

James Ridley:                     Going to throw it out to both of us.

Brett Evans:                        Yep.

James Ridley:                     Just provide our own guidance.

Brett Evans:                        Yes.

James Ridley:                     And then I suppose, we’ll let it carry from there.

 

Australian Expat Tax Residency

 

Brett Evans:                        Okay, let’s get this show on the road. So, first topic, the Harding case.

James Ridley:                     Yeah, so as we all know, a brief summary of the Harding case, an engineer based over in Bahrain, was working obviously in Saudi Arabia. His work put him up in serviced apartment accommodation, I believe.

Brett Evans:                        Yep.

James Ridley:                     His family hadn’t moved over there yet because the long-term plan, or the short-term plan I should say, was he’d go over, he’d stay in these serviced apartments, and then the wife and family would come over once the youngest child had finished high-school, so that was in the next year or two. And then they’d look at getting a permanent rental and being there permanently. Throughout that period, there was a relationship breakdown between the wife and the husband or Glenn, and essentially they didn’t come over. And then in the 2011, I believe it was, income tax year, that’s when the ATO chose to challenge his expat tax residency. Ended up saying, “Listen, you owe us this huge tax bill.” He challenged it, went through to AAT, and then obviously kicked it upstairs again. And yeah, obviously it’s been in the background for a long time now, and finally a win for Australian expats.

Brett Evans:                        Look, it’s amazing how three little letters, place of abode, can not only have massive ramifications for Mr. Harding, but Australian expats in general because one of the pieces of commentary that I saw from the ATO was, their expectation that he was going to buy a place.

James Ridley:                     Yes.

Brett Evans:                        Now, very few Australian expats actually buy when they’re overseas.

James Ridley:                     Not at all.

Brett Evans:                        They could be overseas for 20 years.

James Ridley:                     Well that’s right. But they’re usually in some form of temporary accommodation, they’re renting, they’re leasing, they’re not buying a permanent place of abode, domicile establishing, all those sort of things, just because usually it’s quite complex when you’re in another country.

Brett Evans:                        Exactly.

James Ridley:                     And depending on what visa you’re on, there’s all these complexities where the ATO doesn’t factor in. And at the end of the day, I mean, he was permanently over there. You could almost say that that serviced apartment building was his permanent place of abode.

Brett Evans:                        Yeah. Now, look. I mean, the ATO made a big play up on the fact that the guy had put all of his belongings in a suitcase and moved from apartment to apartment.

James Ridley:                     That’s right.

Brett Evans:                        But, the number of belongings you have should not define your expat tax residency status.

James Ridley:                     No.

Brett Evans:                        If you’re a hoarder, yeah you’ve got more stuff but if you’re, these days, minimalistic is the term, people love to have that freedom to be able to move around.

James Ridley:                     Yeah.

Brett Evans:                        So, to me, it’s not so much the fact that he’s got a suitcase, but more so, where is he living at the time, and the duration, and do his behaviours match that of a Bahraini resident?

James Ridley:                     Yeah.

Brett Evans:                        Because he went to the pub, joined the gym, all these sort of things.

James Ridley:                     He’d even purchased a car.

Brett Evans:                        Yes.

James Ridley:                     So, I mean, you’re exactly right. The characteristics that he had, they did mimic someone that was permanently there, you don’t just go and buy a car for no reason.

Brett Evans:                        Yep.

James Ridley:                     I think that the ATO also lent on some of the issues with the serviced apartment that he wasn’t paying utility bills or anything like that. So hadn’t really, I suppose, permanently rooted himself in that community.

Brett Evans:                        Yep.

James Ridley:                     And you’re right. I mean he could pack up his suitcases in hours.

Brett Evans:                        Yes.

James Ridley:                     They hung their hat on as well.

Brett Evans:                        They did, but apart from 2011, which is the year that they assessed him, because he came back and spent quite a bit of time in Australia going through the divorce.

James Ridley:                     Yeah.

Brett Evans:                        So that was the only way, that was what they were also leveraging on, “Oh no, you’re in Australia, you’re spending this time overseas, but you’ve only been overseas for a short amount of time.” Relatively speaking.

James Ridley:                     Yeah.

Brett Evans:                        And you’re back in Australia now, so you’re a resident again. Whereas, as the Administrative Appeals Tribunal found, he had to come back to sort out his stuff anyway. Then that, coming back to sort out his divorce did not change his intent, which was to be a foreign resident.

James Ridley:                     Yeah. Yeah, I suppose the ATO was also looking at his family being back in Australia. I mean, I know that’s not technically a test when it comes to the four tests that we look at, or the three main ones that obviously the last is super for seconded government employees, but having or maintaining those close family ties, it’s not an actual test.

Brett Evans:                        No.

James Ridley:                     But the ATO likes to hang their hat on this because there’s been past cases as well.

Brett Evans:                        It sort of falls under their behaviours, isn’t it?

James Ridley:                     Yeah.

Brett Evans:                        Yeah.

James Ridley:                     Yeah, exactly right. And that’s what’s annoying about expat tax residency. And whenever it comes into courts, they hang their hat on past cases. So that’s why this case is a huge win.

Brett Evans:                        Yes.

James Ridley:                     Because it’s going to change the way, I suppose, the ATO thinks about expat tax residency. And I suppose that’s why-

Brett Evans:                        We’ve got a precedent now.

James Ridley:                     Exactly right. And I suppose that’s why the Board of Taxation wants to overhaul it. They want to remove the four tests, they want to have a primary and then a secondary. And I suppose they’re almost just rewriting the rules, but essentially the first test they’re looking at is day count. And it’s based on inbound, outbound, all these other things which will be a lot easier.

Brett Evans:                        So, strike 183 and off we go.

James Ridley:                     Yeah. One thing, which is interesting about what they’ve stated, is that it’s based within a 12 month period. At the moment, the 183 day rule applies to the financial year. So, it’s going to be interesting to see how that’s going to actually interact. So, looking on a calendar year, it’s obviously a new, fresh financial year, so it has that-

Brett Evans:                        Reset the calendar.

James Ridley:                     Yeah, exactly right. If you look at… I mean, we had that webinar the other day.

Brett Evans:                        Yep.

James Ridley:                     The way that the US has that rule –

Brett Evans:                        Yeah, couldn’t believe that, yeah.

James Ridley:                     Yeah, that was very… So it was 183 days but from previous 3 year period.

Brett Evans:                        That’s correct.

James Ridley:                     Yeah.

Brett Evans:                        So you could, and I think this is where a lot of people, to me, the alarm bells flashed.

James Ridley:                     Yes.

Brett Evans:                        When we were talking about green cards.

James Ridley:                     Yes.

Brett Evans:                        A lot of Aussie’s want to get green cards, they want to live the American dream. They have to go into America to set and start that process.

James Ridley:                     Mm-hmm (affirmative)

Brett Evans:                        But quite often, then they fly back to Australia, and then they’ll sort their life out. They might be back in Australia for a significant period of time.

James Ridley:                     Yeah.

Brett Evans:                        But the count has already started.

James Ridley:                     Yeah, yeah, exactly right.

Brett Evans:                        So it’s one of those things, I think that, I don’t know, I mean to me, the government doesn’t do enough to really paint a black and white picture. Whether the ATO does this on purpose to leave themselves some-

James Ridley:                     Oh, it’s wiggle room.

Brett Evans:                        Wiggle room, yeah.

James Ridley:                     Why not? Absolutely, it gives them the opportunity.

Brett Evans:                        Yeah because I think, we speak to a lot of Australian expats and they say “no, I went on to the ATO website and filled in the questionnaire.”

James Ridley:                     The tool, yeah the count-.

Brett Evans:                        The tool. And it says I’m a non-resident. But Mr Harding could have done that, he would have got the same answer.

James Ridley:                     Yeah.

Brett Evans:                        Yet, the ATO has turned around to try and charge him.

James Ridley:                     Mm-hmm (affirmative).

Brett Evans:                        Well, not charge him, but you know, bill him as an Australian resident for tax purposes. So, certainly the Board of Taxation changes would be a welcome change because to me, there’s a lot of, in the last five years, digital nomads.

James Ridley:                     Yeah, oh yeah, huge.

Brett Evans:                        They’re freelancers, they’re sitting on a beach in Bali, then they might move to this country, this country, but certainly they would not be considered as a foreign resident.

James Ridley:                     No.

Brett Evans:                        And even the Board of Taxation said it in their release, they actually talked about if that’s the case, then even if you’re in Bali sitting on a beach, you’ll actually still be an Australian resident.

James Ridley:                     Yeah, yeah well because it’s usually because they haven’t actually established expat tax residency in Bali.

Brett Evans:                        Exactly.

James Ridley:                     They’re over there living that lifestyle.

Brett Evans:                        Yeah.

James Ridley:                     Obviously, there’s a big entrepreneurial, I suppose community, over there, people starting, self starters. But they’re not paying tax in Bali at all.

Brett Evans:                        No.

James Ridley:                     They’ve just gone over there because they can access cheap materials, and those sort of things to set up these online stores and everything.

Brett Evans:                        Yep.

James Ridley:                     But you’re right, I mean the business is still based here in Australia, they still set up companies so they’re still getting taxed here. I think a little while ago, Estonia released that E-residency.

Brett Evans:                        Yes, that was smart, yeah.

James Ridley:                     Yeah. Trying to target those close, sort of nomads, maybe they’re travelling around, trying to help them establish some sort of expat tax residency somewhere but you still gotta tick relevant boxes to meet that criteria.

Brett Evans:                        You’ve gotta put your suitcases down somewhere.

James Ridley:                     Yeah, exactly.

Brett Evans:                        And if you’re moving from country to country every 30 days-

James Ridley:                     Yep.

Brett Evans:                        Because that’s how long that visa allows you to be in that country for, then to me, yeah, you’re not a foreign resident for anywhere.

James Ridley:                     No.

Brett Evans:                        And, a similar sort of profession would be super-yacht crews.

James Ridley:                     Yes.

Brett Evans:                        They’ve got a lot of problems, because they can’t get a lease in their name, which is what they ATO likes to see.

James Ridley:                     Yeah.

Brett Evans:                        There’s no lease, there’s no utility bills, no gym memberships.

James Ridley:                     Yep.

Brett Evans:                        These guys just sort of, orbit the planet on the oceans.

James Ridley:                     Well that’s right, I mean they’re usually in international waters or the Bahamas, Cayman Islands, all those sorts of places, where they’re not technically establishing a permanent domicile. Obviously they’re working, living on the boat, but where’s their expat tax residency? Because a lot of those type of crews, they get paid cash.

Brett Evans:                        Yeah.

James Ridley:                     Or they just get US dollars, automatically sent to them in their bank accounts. If they haven’t gone somewhere and established a expat tax residency, whether it be in a low tax environment, whatever then they’re still an Australian tax resident.

Brett Evans:                        That’s right.

James Ridley:                     And this is where a lot of them get caught out.

Brett Evans:                        Yep.

James Ridley:                     They’ll go overseas for years, they won’t do anything about Australian tax returns or anything. Come back, speak to a tax agent that has some experience, and go holy crap, like you’ve got five years of tax returns, and it’s likely that the ATO’s going to want to tax you on every year of that tax free income.

Brett Evans:                        Yep.

James Ridley:                     And I think that’s where a lot of people get quite nervous, and they’re almost scared to seek advice.

Brett Evans:                        Yeah, I’ve actually got one client who emailed me last week.

James Ridley:                     Yep.

Brett Evans:                        Super-yacht crew in the Caribbean.

James Ridley:                     Yep.

Brett Evans:                        Sick of the unknown.

James Ridley:                     Yep.

Brett Evans:                        He’s actually engaged a tax attorney.

James Ridley:                     Yep.

Brett Evans:                        In Australia, to get a definitive answer, I’m guessing he’ll probably go for a private ruling.

James Ridley:                     Yep.

Brett Evans:                        Just to try and get that peace of mind because I’ve seen some clients, what they’ll do is they’ll go and rent an apartment somewhere.

James Ridley:                     Yep, heard it.

Brett Evans:                        A very cheap apartment, so they’ve done a cost benefit equation to say, okay if I get assessed for tax, I owe this much, or I could go rent an apartment for this much, and therefore, yes I don’t have as much take home, but I’m sort of removing that uncertainty. So, certainly you’d love to see the new non-residency laws to take that into account.

James Ridley:                     Yeah, absolutely. And I mean, I think one big question mark is for the FIFO workers.

Brett Evans:                        Yes.

James Ridley:                     I mean, the amount of inquiries we get from FIFO workers about, “I’m heading overseas, I’m working six weeks on, three weeks off. What are you doing those three weeks? Oh, I’ll probably come back to Australia and catch up with family and friends or I might travel the three weeks. Okay, well.” When you’re working, is it just sort of a case where you’re staying in the camps, the dry camps essentially?

Brett Evans:                        Yep.

James Ridley:                     If you’re going to establish a new expat tax residency, you need to do it somewhere permanently, obviously, and paying tax there as well in that local jurisdiction. I suppose yeah, that’s one thing that’s not unclear, people opt into these FIFO roles because they’re like, “oh geez, no tax, I’m not going to get taxed here.” Obviously, working in other countries it’s likely the relevant tax will come out of it from that as well.

Brett Evans:                        Yep.

James Ridley:                     Which is good, but still they sort of do it under the premise where, I don’t have to pay tax in Australia, but not the case at all, they’re going to get taxed through the roof still.

Brett Evans:                        And I think the other thing too is, unfortunately, a lot of these people get told incorrect information by the employers.

James Ridley:                     Oh yeah. And I mean, even at local barbecue’s, people they’re even working with on the rigs.

Brett Evans:                        Yep.

James Ridley:                     They’re, “oh I’m a non-tax resident”, they obviously haven’t done their own research-

Brett Evans:                        That’s right.

James Ridley:                     It’s likely they still are, or if they’re saying that, it means because they’ve gone to great lengths to make sure they aren’t, and establishing permanent residence somewhere else.

Brett Evans:                        Somewhere else, yeah.

James Ridley:                     Whether it be Thailand, Vietnam, anywhere, all those sort of areas.

Brett Evans:                        And look, it’s little things done simply, done correctly, that give you the best results. But it’s that sort of, I guess the apathy that a lot of Australian expats sometimes treat the finance side.

James Ridley:                     Yeah.

Brett Evans:                        And then they’re the first ones to whinge, when in actual fact, just having a chat with someone who deals with it on a daily basis, in two minutes could give them an answer straight away. And it would almost solidify the benefits of becoming an Australian expat.

James Ridley:                     Yeah.

Brett Evans:                        As opposed to, I’m moving overseas to save money, and then you get hit with the tax bill, and in actual fact all the pain and suffering and the hassle of doing it, wasn’t worth going.

James Ridley:                     No, not at all. And I think a lot of people, they’ll take that job, they’ll take that role, if they can make sure that they are an Australian expat.

Brett Evans:                        Yeah.

James Ridley:                     I’ve had inquiries before saying “listen, I want to become a non resident, what do I need to do?.”

Brett Evans:                        Yep.

James Ridley:                     I’ll say, “well what are you willing to do?”

Brett Evans:                        Yeah.

James Ridley:                     I’ll say, “what lengths are you willing to do, are you willing to go away for a three to five year period? Almost cut all ties from Australia? You’ve got a main residence right now, are you willing to rent that out?” “Oh, I just bought it, no I don’t know if I want to rent it out, I don’t want a tenant destroying it.”

Brett Evans:                        Yep.

James Ridley:                     Or you’re maintaining your domicile, so you’re not going to be able to satisfy that test, therefore it’s likely you’ll still be an Australian tax resident. All these things come into it, and you’re right, speaking to someone that’s obviously knows what they’re talking about, an expert is going to go a long way, compared to speaking to someone where it’s John Smith’s tax returns for 98 dollars a year, I mean-

Brett Evans:                        We had a case the other day with that accountant, was it the new client got told by the accountant he’s got an investment property, doesn’t have to lodge tax returns.

 

Importance of Obtaining Professional Australian Expat Tax & Financial Advice

 

James Ridley:                     Oh yeah, yeah. So one of the questions actually I was going to throw out today is, so, had an inquiry, been overseas since 2011, crystallises essentially their non-residency from 2012, they were doing some tax returns, they’ve got investment properties and shares going on in the background. 2015, tax accountant said “listen, you don’t need to lodge “tax returns because you’re a non resident now.” He’s been doing their tax returns, and knows they have an investment property producing income, shares that are un-franked, so obviously that needs to be declared.

Brett Evans:                        Yep.

James Ridley:                     But he said to them “you don’t need to lodge tax returns.” So they haven’t. I mean, we’re coming up to the close of 2019 financial year.

Brett Evans:                        Four years later.

James Ridley:                     Yeah, I did a quick analysis and said “listen, it sounds like your property’s positively geared, there’s going to be some tax to pay, and it sounds like you honestly just got poor advice.”

Brett Evans:                        Yeah.

James Ridley:                     And it could be a case where that accountant does not have exposure to international matters.

Brett Evans:                        Yep.

James Ridley:                     You don’t want to be paying someone to go and learn what to do, you want to pay someone that knows what they’re doing.

Brett Evans:                        Knows what they’re doing, that’s right, yeah. Rather than, I’ll be back in a week and here’s the bill for me researching the answer.

James Ridley:                     Exactly, and it sounds like that was a typical case, which unfortunately a lot of people are exposed to.

Brett Evans:                        Yep.

James Ridley:                     But now, they’re going to have to do a catch up of four financial years essentially.

Brett Evans:                        Yep.

James Ridley:                     And have a bit of a tax bill to pay, which they never would have had to if they went and sought the right advice, got the right tax strategy in place, all these other things.

Brett Evans:                        Well, that’s the sad thing to me, is they actually did the right thing by getting advice. It was just the wrong advice.

James Ridley:                     Yeah, yeah you’re right.

Brett Evans:                        And I think it’s something we can certainly address on later podcasts, how does an Australian expat or a soon to be expat select their investment professionals? Accountants, financial planners and those sorts of things. Because even if you think you’re doing the right thing, sometimes it’s not the right thing because you’re talking to the wrong person.

James Ridley:                     Yeah, and I mean a simple question they can ask these individuals is, how many clients do you have in my current situation?

Brett Evans:                        Yep.

James Ridley:                     Do you have many clients in this situation? Do you have many clients on your books that are non residents?

Brett Evans:                        Yeah.

James Ridley:                     Simple questions like that, and if they come back to you, “oh well you know, I think I’ve got one or two”, bit of a red flag.

Brett Evans:                        It’s when they say a couple. They never really-

James Ridley:                     Yeah, vague.

Brett Evans:                        A couple, yeah.

James Ridley:                     Like, yeah, no I’ve got a couple. Oh okay. You know you need to really press on this because you want to make sure you’re getting the right advice.

Brett Evans:                        Yeah.

James Ridley:                     And sometimes it can be the case where that individual just wants to keep it as a client, to revenue stream.

Brett Evans:                        Yep.

James Ridley:                     And then that’s why their responses are going to be, sometimes a bit grey.

Brett Evans:                        Yep.

James Ridley:                     They’re keeping on board, they’re getting obviously their revenue, but they’re keeping what they think, within the red and yellow phase, but usually, in this case, it was completely wrong.

Brett Evans:                        Well we had that case with one of the largest dealer groups of financial planners here. We won’t name names, because once again, we’re not keen on getting sued for defamation, all those sorts of things.

James Ridley:                     No.

Brett Evans:                        Not that I think we would, but this group actually bans people from, financial planners from dealing with Australian expats.

James Ridley:                     Yeah.

Brett Evans:                        As soon as they move overseas. And from the letter of the law inside the dealer group, they must cease to stop working with these clients.

James Ridley:                     Yeah.

Brett Evans:                        But what they’re trying to do to circumvent the process, is they will get the client to sign a power of attorney, or a limited power of attorney, to someone locally, so they’re like, “no, I’m still dealing with Fred Smith, but via his sister.”

James Ridley:                     Yeah.

Brett Evans:                        The problem is, the problem’s not solved because they’re not able to provide advice while that person is overseas. Especially if they’re going to places like the United States, where the rules are so convoluted that eight years in and we’re still finding new ones.

James Ridley:                     Oh, I mean the webinar alone yesterday with Glenn Hines, that was eye-opening to myself even. We’re the ones out there, but Glenn can go on obviously several tangents about different things regarding US tax, and some of them were mind blowing. The loan re-basing rule, that’s a scary one.

Brett Evans:                        Yeah, and just to sort of explain to all the people listening, and also viewing, on both our podcast and YouTube channels, we actually had that live webinar recorded up on those channels. So on podcasting it’s Ask an Expert, and on YouTube it’s under our webinar’s playlist as well, too. Most Australian expats have loans, whether it’s HECS debt, whether it’s property, whether it’s all those sort of things. And virtually what Glenn was saying, was if you pay out your loan, prepare for a tax bill by the IRS. If you refinance, prepare for a tax bill.

James Ridley:                     Foreign currency, capital gain.

Brett Evans:                        That’s right.

James Ridley:                     So, just on more on that webinar, it’s mainly geared towards Aussie’s in the US.

Brett Evans:                        Yes, that’s a big distinction, so it’s pretty much, if you’re Hong Kong, Singapore, Dubai, London, yeah, go watch something else more exciting on YouTube or listen on podcast.

James Ridley:                     Well, I suppose, we’ll do another one of those for everyone, but that’s going to be probably after the tax year.

Brett Evans:                        Yes.

James Ridley:                     With Shane McFarlane, so that’s okay.

Brett Evans:                        Yep.

James Ridley:                     But yeah, no, exactly right, loan rebasing, foreign currency, capital gain, IRS, worst taxation authority in the world, I think we can all agree.

Brett Evans:                        Yeah. And that’s the thing, it’s great talking to Glenn, and it’s great talking to all these people that I’ve talked to through the year. The Ask an Expert webinar series, is virtually going to be us interviewing key people that we work with on a daily basis. But these people do this stuff every single day.

James Ridley:                     Yeah.

Brett Evans:                        And that’s the big distinction when you’re looking at working with some sort of professional, whether it’s immigration, tax, law, insurance, you name it. Don’t just assume that person has that experience and has that understanding of the implications. Because that’s the first thing we do when we meet people, is when we’ve heard the brief, we go straight away, “okay here’s the red flags, how do we fix that?” And then we step it back and say, “okay now we’ve fixed the red flags, how do we maximise the financial benefits of you moving overseas?”

James Ridley:                     Yeah, exactly right. Start creating wealth, in obviously a tax efficient manner, or as much as we can. And obviously not causing those adverse CGT events on our side as well.

Brett Evans:                        Yep.

James Ridley:                     So trying to work on both sides but keeping it locally-

Brett Evans:                        Yeah.

 

Question From an Australian Expat In The US

 

James Ridley:                     To Australian assets, but just moving and touching base on the US side, because you brought it up.

Brett Evans:                        Yep.

James Ridley:                     I did have an inquiry that did raise a question.

Brett Evans:                        Go for it, yeah.

James Ridley:                     And I thought I’d bring it in. There’s a bit of a gap in what we know but I’ll try and read it out. “So, bit of a background, I’m 57, I’m an Australian citizen, I’m living in the US permanently on a green card, I’m married to an American citizen. I’ve got a super fund in Australia, standard retail super fund, just for a background. Also got a 401K accruing with my current employer. I’m not coming back to Australia, I’m going to retire in the US.” So that’s the background. “The question is, what should I do with my Australian Super account? A, let it continue and in accruing value as I work full time in the US.” So that’s the first question.

Brett Evans:                        Yep.

James Ridley:                     Where to accrue value, he’s not retiring yet obviously.

Brett Evans:                        No.

James Ridley:                     So you can’t really pull it out.

Brett Evans:                        You can’t, yeah, he’s got no choice.

James Ridley:                     Yeah, exactly so, “B, a bit of a side note, since the super fund does not have a reciprocal fund in the US”, I might just pause on that one.

Brett Evans:                        Yep.

James Ridley:                     So, just for a bit of background for everyone, you can’t directly transfer a 401k into an Australian super fund.

Brett Evans:                        That’s right, yeah.

James Ridley:                     And vise vera, you can’t transfer an Australian super fund amount lump sum directly into a 401k. They’re completely different tax vehicles, essentially.

Brett Evans:                        One’s a pension, one’s social security.

James Ridley:                     Well, that’s right. And I mean, the tax treatment’s completely different. 401k is generally, well there’s types of 401k, the Roth’s, the IRA’s, but generally a 401k from your employer, it’s a tax deferred account.

Brett Evans:                        Yep.

James Ridley:                     Salary sacrificing matching scheme, no one’s paid tax on it, the contribution has gone in, it grows, when you pull it out, that’s when you start getting taxed.

Brett Evans:                        Yep.

James Ridley:                     Superannuation’s different, when it goes in, the contributions go in from us, there’s obviously after tax contributions, they’re non-concessional, and then the concessional, which is from us, or the employer from salary sacrificing. So when that goes in, the 15% tax goes in, the investments are taxed at the 15% or long term capital gain’s 10%, and then when we’re 60 or over, we’re fully retired, draw an income stream, tax free.

Brett Evans:                        Yep.

James Ridley:                     So completely different to the 401k system. So no, you can’t directly transfer super into, obviously a 401k and visa versa. That’s just addressing that question. And then lastly, he said, well he’s asking if there’s another super fund that has a reciprocal in the US.

Brett Evans:                        Yep.

James Ridley:                     There isn’t

Brett Evans:                        No, there isn’t, yep.

James Ridley:                     There’s a completely different treatment, “to allow me to retire and fund minimising costs, how would you advise me to access my Australian super funds?” So, that’s a bit of a broad question, but essentially I think he’s asking, one question that doesn’t get asked there is, how’s his Australian super fund getting treated right now by the IRS?

Brett Evans:                        Yeah.

James Ridley:                     Because the fact that he’s retiring in the US, and if he starts growing this income stream from the Australian super fund, he’s going to have to report it to the IRS.

Brett Evans:                        And that’s the bit that caused a lot of confusion, because when you go from a accumulation account to an allocated pension super, in Australia, you don’t pay tax. So, in allocated pension, no capital gains tax, and no income tax.

James Ridley:                     Yes.

Brett Evans:                        So, people go, okay great, free money.

James Ridley:                     Yeah, yeah.

Brett Evans:                        But, the US actually tax you on that, if you’re drawing down the minimum 4%-

James Ridley:                     Oh yeah, absolutely.

Brett Evans:                        That 4% becomes accessible for tax in the US.

James Ridley:                     And there’s not usually a tax credit either.

Brett Evans:                        That’s right.

James Ridley:                     Because it’s tax free money, when we’re withdrawing from the Australian side.

Brett Evans:                        Yeah.

James Ridley:                     So, one area that is a bit, I suppose, nerve racking, is, okay you’re going to start drawing this income stream, you’re going to start declaring it on your IRS tax returns as foreign sourced income, there’s no tax credit there available. If you haven’t declared it to the IRS, is the IRS going to want to know more about that super fund and that balance? And be like, well where’s this amount come from? We’ve never taxed the growth of this-

Brett Evans:                        It’s suddenly popped up on the radar.

James Ridley:                     Yeah, that’s right. As we know, super funds can be foreign grantor trusts, they can be employee’s trusts.

Brett Evans:                        Yep.

James Ridley:                     Sorry, employee benefit trusts, case by case.

Brett Evans:                        Yep.

James Ridley:                     That’s been established yesterday, based on the contributions and other things. But, that’s a big red flag in itself. How’s it being treated right now? If he’s declaring it, good. If it’s, obviously, he’s declaring the capital growth, and the earnings, and he’s paying tax on that now, that’s good because when he draws from it, he’s not going to get taxed again.

Brett Evans:                        Yep.

James Ridley:                     But it’s almost a flip side.

Brett Evans:                        Look, it is, yeah, yeah.

James Ridley:                     Yeah, yeah.

Brett Evans:                        And I think that’s where people really struggle, Australian expats in the US in particular, how to join the dots because quite often, there’s apples and oranges, and they’re trying to make them apples and apples.

James Ridley:                     Yep.

Brett Evans:                        And to me, people need to realise, these schemes, the 401k, superannuation, they’ve been going for 30, 40 years.

James Ridley:                     Yep.

Brett Evans:                        Now, the idea of cross boarder migration of assets, really wasn’t a big thing back in the 70’s and 80’s.

James Ridley:                     No, not at all.

Brett Evans:                        So these things were set up in isolation, separately.

James Ridley:                     Yep.

Brett Evans:                        And that’s why they don’t match.

James Ridley:                     Yeah.

Brett Evans:                        As opposed to Australia and the UK pension scheme, Australia borrowed a lot of the parts to build super, but then flipped it around. So instead of being tax free accumulation, in Australia, you’re tax on accumulation.

James Ridley:                     Yeah.

Brett Evans:                        In the UK, you pay tax in pension phase, whereas in Australia, you don’t pay tax. So, that’s why there’s… that’s the only avenue to move your pensions, your allocated pensions, superannuation, between UK and Australia, is because there is a similar structure.

James Ridley:                     Yeah.

Brett Evans:                        And I put that in inverted comma’s.

 

Transferring A Foreign Pension to an Australian Superannuation Account

 

James Ridley:                     Yeah, no, absolutely. I think if you keep going further, you’re going to start talking about the foreign super fund and obviously if you’re working over in Saudi Asia region, provident fund, trying to withdraw that within a six month period, as you return to Australia, that’s obviously when you want to, and the fact that you’ve been a non-resident means you’re going to get that six month tax free grace period.

Brett Evans:                        Yeah.

James Ridley:                     Options around trying to get into super, but obviously staying within your contribution caps. Obviously, you need a look into a relevant strategy there. And it’s rare that normal retail, or industry super funds will accept those contributions.

Brett Evans:                        That’s right.

James Ridley:                     It’s usually a case where, I don’t know if any exist now, but whether you can do a direct transfer. It’s usually you can’t now.

Brett Evans:                        Well that’s right, I think there’s about three or four local government superannuation, there was a couple of weird ones.

James Ridley:                     Yeah.

Brett Evans:                        That accepted them, but you had to be waiting for the local government to be a part of that fund.

James Ridley:                     Yeah.

Brett Evans:                        I mean, even the ones that were there, weren’t usable by Australian expats. The other problem you’ve got too, is with contribution caps being reduced and proposed to be further reduced-

James Ridley:                     Oh, with Labor.

Brett Evans:                        With Labor, you’re going from 100 down to 75.

James Ridley:                     Yeah.

Brett Evans:                        Even if, and a lot of Australian expats don’t actually understand the six month rule, so just to explain that quickly for the audience. Essentially, you move back to Australia, you have six months to move your foreign pensions back into the country and you won’t pay tax.

James Ridley:                     Just further on that, you got to make sure before that period you were a non-resident.

Brett Evans:                        Yes, that’s correct, yeah.

James Ridley:                     I’m going to just do a little side note and story. I had a recent inquiry about an individual that’s been working over in Papua New Guinea, I think a gold mine.

Brett Evans:                        Okay.

James Ridley:                     And he’s actually still been an Australian tax resident for the last 10 years. So he’s been declaring that income here in Australia, paying tax on it, but unfortunately he has a Papua New Guinean super fund accumulating as well, through his employer.

Brett Evans:                        Has he declared that to the?

James Ridley:                     He should have been declaring the growth of it each year, that way he can withdraw it.

Brett Evans:                        Yes.

James Ridley:                     However, he hasn’t been. The fund has grown quite large now, and because he’s never been a non-resident, there’s no six month grace period for him at all.

Brett Evans:                        That’s right, yeah.

James Ridley:                     So you need to then go down the path of seeking a private ruling, to identify with the ATO what is taxed and what is untaxed.

Brett Evans:                        Yep.

James Ridley:                     And then that way, when you transfer it back, you’ll know how to declare it in your Australian tax return.

Brett Evans:                        Yep.

James Ridley:                     And that was a side note, sorry.

Brett Evans:                        Okay, no it’s good, and that’s half the battle I think that Australian expats, when they leave the country and when they come back, quite often they’re not considering financial considerations.

James Ridley:                     Not at all.

Brett Evans:                        And they’re coming back to Australia, they’re looking forward to moving into the new house, or living with family, or getting back to Australian roots.

James Ridley:                     Yep.

Brett Evans:                        The problem you’ve got, is they don’t know about the six month rule, and like a lot of Australians with Australian super accounts, a lot of Australian expats have pension accounts sort of dotted as they’ve moved around over the years. If they don’t move those pension accounts back into Australia in that six month period, then any change in value from that point on, becomes taxable.

James Ridley:                     Yeah, well it becomes applicable fund earnings.

Brett Evans:                        Yes.

James Ridley:                     So essentially, when you bring it back, lets run a little quick scenario.

Brett Evans:                        Yep.

James Ridley:                     I’ve left it there for two years, the markets have had a great one in that two year period since I’ve been back. I take it out, I finally work out how to take it out, the balance of that fund before I left, that’s not taxable, which is good. But, the applicable fund earnings is essentially the growth of that fund since I’ve been back, that’s 100% taxable.

Brett Evans:                        Yep.

James Ridley:                     If you’re bringing it straight back in your individual name, put it in your bank account, that growth needs to be declared in your Australian tax return.

Brett Evans:                        Yep.

James Ridley:                     The accountant’s likely to declare it as foreign sourced income, it’s likely there’s not going to be a tax credit there either. So, depending on your cash, you could have a very big tax bill and be a bit surprised.

Brett Evans:                        Yeah, definitely.

James Ridley:                     So that’s how that’s treated, and that’s a bit of a scenario on foreign super fund transfers, but like I said, there’s not too many retail super funds exist these days, and usually people might have to consider going and getting their own self managed super fund.

Brett Evans:                        Yep.

James Ridley:                     Because there’s a lot more control there, if you’re working with an accountant who can do so, but obviously it’s not worth it if your balance is going to be under-

Brett Evans:                        500 grand.

James Ridley:                     Yeah.

Brett Evans:                        I think what-

James Ridley:                     So, yeah, yeah, at least. I mean, I don’t like seeing that all-

Brett Evans:                        Oh, when you see the 100 and 200 thousand Self managed super funds.

James Ridley:                     Shouldn’t have it, shouldn’t have it. But yeah, that’s a general bit of a run down there, but I’ll move on to this next question.

 

Qualifying As A Non-Resident for Expat Tax Residency Purposes

 

Brett Evans:                        Yes, go for it, yep.

James Ridley:                     It’s very unusual.

Brett Evans:                        Yep.

James Ridley:                     So, “I was told by my accountant that in order to be a non-resident, we must be away from Australia for a minimum of seven years. We can’t send anything home in terms of funds or savings, is this correct?”

Brett Evans:                        Where did the seven years from?

James Ridley:                     Well, that’s what I sort of looked at as well.

Brett Evans:                        Yeah. I mean, if you reference a six year, you might be referring to MRE, or those sorts of things, but seven years-

James Ridley:                     Seven year’s bizarre.

Brett Evans:                        That’s such a random number.

James Ridley:                     I know, and I almost second guessed myself for a second because I was like, I’ve never heard of a seven year rule.

Brett Evans:                        Yeah, what don’t I know?

James Ridley:                     Yeah, exactly, what don’t I know. So had a quick chat to an accountant and they told me there is no seven year rule, I was like, yeah I thought I was right, okay.

Brett Evans:                        Yep.

James Ridley:                     Gone back to them, I said “there is no seven year rule.” Now, it’s possible that this accountant is ultra conservative.

Brett Evans:                        Yep.

James Ridley:                     Saying listen, you need to stay away, you need to stay for a good time, at least seven years, that’s the period, that’s the-

Brett Evans:                        So, the accountant may have referenced a random number to give the idea behind how long you need to go for.

James Ridley:                     Yeah.

Brett Evans:                        And this guy took it as letter of the law.

James Ridley:                     Yeah.

Brett Evans:                        Had to be away for seven years.

James Ridley:                     Yeah, absolutely, and the fact that he’s like don’t send any money home, cut ties, I think that’s probably, the guys probably getting to a point where he’s like, I want to come home, I don’t want to come back at the six year mark and it sort of trigger a expat tax residency event where they’re going to look at me for the last six years. So, there is no seven year rule.

Brett Evans:                        Yeah.

James Ridley:                     Obviously, case by case, based on your circumstance, satisfying all those tests, as a minimum, I say to people, minimum three years.

Brett Evans:                        Yeah.

James Ridley:                     I mean, that’s a comfy range.

Brett Evans:                        And the interesting thing, just referencing the Harding case again.

James Ridley:                     Yeah.

Brett Evans:                        So, for those out there who are really bored, you can actually read the Administrative Appeals Tribunals filed report, how they were able to throw this case out. Sorry, approve the appeal.

James Ridley:                     Yeah, yeah.

Brett Evans:                        And I think it was one of the last pages, the judges actually reference the fact that the whole premise, because what they, they’re really getting, really nitpicking with Mr Harding.

James Ridley:                     Yeah.

Brett Evans:                        And they said he’s got super in Australia and he’s got investments in Australia.

James Ridley:                     Yeah, okay.

Brett Evans:                        And, well, most Australian expats would love to take the super with them, but they can’t.

James Ridley:                     Yeah, yeah.

Brett Evans:                        But the judge has actually said, in today’s international world, there is an expectation that there will be money moved around, and there is a higher expectation, that if you are overseas, earning money, you want to save it. More than likely, you repatriate it back to Australia because you know the economy, you know the framework, you know how protected you are.

James Ridley:                     Yeah, yeah.

 

Tax on Transferring Money Back to Australia

 

Brett Evans:                        So, that was actually great to see that on paper. Because we get so many comments from people about this whole, do I transfer money back to Australia or not?

James Ridley:                     Yeah.

Brett Evans:                        And we say, well it happens every day.

James Ridley:                     Yeah.

Brett Evans:                        But it’s on the intent of that money. Do not send money back that looks like a salary, do not send money back-

James Ridley:                     Yeah.

Brett Evans:                        If you’re sending money back to pay for the mortgage, great. If you’re sending money back to build up an investment account, great.

James Ridley:                     Almost like, sending it back for an intended purpose really.

Brett Evans:                        Yeah, that’s right.

James Ridley:                     Or you know, like you said, offset account, mortgage repayments, expenses for a rental property. Obviously, like you said, I know there’ll be plenty of individuals out there who will be getting paid into their Australian bank account from their overseas wage because that’s what’s been organised through their accountant.

Brett Evans:                        Yep.

James Ridley:                     Well, not through their accountant sorry, through their payroll.

Brett Evans:                        Employer, yep.

James Ridley:                     Which, if they want to satisfy being a non-resident, that’s actually something you should not do.

Brett Evans:                        Yeah.

James Ridley:                     I mean, you’re in a new country, set up a bank account, do the right thing.

Brett Evans:                        Be a local.

James Ridley:                     Yeah, be a local, exactly right.

Brett Evans:                        And I think that’s, I actually had this conversation yesterday with a client. He’s based in China, so we’re talking about this repatriation of capital.

James Ridley:                     Yeah.

Brett Evans:                        And I said to him, I said “okay, you’re in Shanghai, compare yourself to a local Shanghai resident.”

James Ridley:                     Yes.

Brett Evans:                        Can you buy property in Australia? Yes you can. China’s been doing it, a lot other foreign national’s have been doing it, so that does not mean you’re a resident. Can a Chinese investor invest money in the Australian stock market? They certainly can.

James Ridley:                     Absolutely.

Brett Evans:                        It’s when they start to move money back because of family reasons, then they go, well would a Chinese national do that? No. So, once I sort of gave him that clarity of saying, pretend you’re a local and act like a local, he’s like, “oh okay”, because that’s where the confusion is. People go, should I transfer money, should I not? But in actual fact, if you’re in Dubai, think of yourself as an Emirati, if you’re in Singapore, what would a Singaporean do?

James Ridley:                     Yeah.

Brett Evans:                        If your financial transactions, and your behaviours match that of a Singaporean resident, then great.

James Ridley:                     Yeah, yeah exactly right, I think you’ve hit the nail on the head there, absolutely. I’ve got another question.

Brett Evans:                        Go for it, yep, keep going through.

 

Can You Reset Your Expat Tax Residency?

 

James Ridley:                     I love throwing them out there. This one’s unusual, and I don’t think there’s any issues with this to be honest, but individuals, a wife and a husband, they’ve been living over in France for a period, France again actually, like the other one. They stopped working in 2016 and then they stayed in France, they were still tax residents but they didn’t receive an income, had plenty of savings til 2018 and they recommenced work. They wanted to know whether their expat tax residency has reset in that two year period, because they weren’t working.

Brett Evans:                        Yep.

James Ridley:                     But they didn’t come back to Australia at all, so in that case, what would you say? Expat tax residency reset?

Brett Evans:                        No, not at all.

James Ridley:                     No, not at all. I mean, they’re still non residents.

Brett Evans:                        It’s domicile.

James Ridley:                     Exactly.

Brett Evans:                        It’s the resides test, the domicile test, they’re still living in France.

James Ridley:                     Yeah.

Brett Evans:                        So, to me, it’s not about whether you’re earning money or not. A lot of Australian’s retire overseas.

James Ridley:                     Yeah.

Brett Evans:                        And a lot of Australian’s who lived in Australia their whole life are looking to retire overseas because of the high cost of living.

James Ridley:                     Absolutely.

Brett Evans:                        So, it comes down to that demarcation, that milestone event, boots on the ground in which country?

James Ridley:                     Yeah.

Brett Evans:                        And then, what are you doing on the ground? Are you travelling, are you living? As long as your boots are on the ground, living, then nothing will have changed.

James Ridley:                     Yeah, absolutely, I think again, nail on the head. They haven’t actually come back to Australia, still over there two years, it sounds like there was a bit of a passion project going on in the background so they’re staying over in France. The fact that-

Brett Evans:                        Renovating a chalet or something?

James Ridley:                     Yeah, probably yeah, retirement house.

Brett Evans:                        Yeah.

James Ridley:                     So just because you’re not working, and you’re still maintaining your domicile and everything in a foreign country, it doesn’t reset your non-residency or anything like that, your tax is in Australia, you’re not bungeed back to Australia for tax purposes. You’re still maintaining it. Just further on that, what about a scenario where you’re moving on to another country, but again, you finish maybe a role in the UAE, Dubai, and then you’re lucky enough to pick up a new role in Singapore, but there’s maybe a two month gap there where you might do a bit of travel.

Brett Evans:                        Yep.

James Ridley:                     So, in that situation, would you say that you bungee back to Australia, or would you say because of that short period, probably you’d still be a non-resident actually.

Brett Evans:                        Yeah, it comes back to what’s reasonable.

James Ridley:                     Yeah.

Brett Evans:                        Do you have, do they expect you to move back to Australia for that two month period and then go back? You know, no. I think that it’s based on your intent. If you can show that you’ve got a contract that finishes this date, and a contract that starts this date, you have to do something.

James Ridley:                     Yeah, absolutely.

Brett Evans:                        Are they going to try and tax you on that two month period, when you’re not earning money?

James Ridley:                     Look at the criteria, the 183 day rule. That’s not getting ticked at all.

Brett Evans:                        No.

James Ridley:                     I don’t know anyone that can establish a domicile, a permanent domicile in two months.

Brett Evans:                        Yep.

James Ridley:                     And then again, obviously, resides two months, technically you’ll be moving to Singapore from Dubai so you’ll be residing still overseas.

Brett Evans:                        Exactly.

James Ridley:                     Still ticking the relevant box of being a non-resident, there’s no issues there.

Brett Evans:                        Look, there’s not, and I think that’s the only thing too that a lot of people don’t understand is the moving parts between jurisdictions.

James Ridley:                     Yep.

Brett Evans:                        So, we’re just talking Australia here, but when you throw foreign jurisdictions in, they have their own rules as well too. So looking at everything, what comes down to one person, will be completely different to another, based on the countries they’re moving to.

James Ridley:                     Yeah, that’s right.

Brett Evans:                        Going back to the US issue, all depending on what time of the year you move to the United States, and if you’ve been there before, like we discussed in the webinar, will dictate when’s a good time to move to the US, whether it’s the beginning of the year, the end of the year, the start of the new year. And it’s amazing, little things, just by having a chat to someone who has half a clue, let alone does this full time.

James Ridley:                     Yeah.

Brett Evans:                        You can make the most monumental difference when it comes to making that change work for the better, but also to, moving is stressful enough as it is, let alone moving states, let alone moving countries. And then you factor the new, if you change employers, and there’s a lot going on. I’ve always said to clients, get the financial stuff out of the way first.

James Ridley:                     Yeah, absolutely.

Brett Evans:                        It’s not sexy, it is boring.

James Ridley:                     Yeah.

Brett Evans:                        But-

James Ridley:                     That’s why everyone puts it off.

Brett Evans:                        Exactly that’s right, exactly. They want to Google where they’re going to live, and all that sort of stuff

James Ridley:                     Try and sort out once they’re over there.

Brett Evans:                        Yeah, but they never do because they get into the local life and then suddenly, 12 months later, off they go.

James Ridley:                     Yeah.

Brett Evans:                        It’s like doing homework. I’ve got two daughters, seven going on 15, and 10 going on 20, and I say to them all the time, get it out the way now, and then you have all afternoon to chill.

James Ridley:                     Yeah.

Brett Evans:                        But sometimes, I’ll just step back and see if they’ll do it, of course they don’t.

James Ridley:                     No.

Brett Evans:                        They go and run around and at eight o’clock at night, we’re doing homework and they’re all tired and cranky.

James Ridley:                     Yeah, they stay on, exactly.

Brett Evans:                        So, Australian expats are the same, the smart ones just get it out the way, done. Whether it’s moving from Australia, or moving between countries overseas, just those little things just make a monumental difference.

James Ridley:                     Yeah.

Brett Evans:                        And suddenly, you make that change, it’s all going swell, and you think, wow that was easy, because there’s no surprises. There’s none of that, those issues and there’s so much misinformation out there, which is one of the reasons why we started the Expat Chat.

James Ridley:                     The Expat Chat.

Brett Evans:                        Because we just got sick and tired of hearing the bar talk and the barbecue talk, and clients coming to us with these random, like the seven year rule, what?

James Ridley:                     What the hell?

Brett Evans:                        Yeah, that’s right. Where’d that come from? I think I’m going to start a rumour about the 11 and a half year rule and see if it gets out there, you know?

James Ridley:                     Yeah, well Australian expats talk.

Brett Evans:                        They do, they do. So, folks out there, if you hear about an 11 and a half rule, it means it’s working.

 

Importance of Obtaining Australian Expat Financial Advice Before You Move Overseas

 

James Ridley:                     It’s come from us, yeah. One thing you mentioned, I mean about the expat tax residency, what is quite frustrating, every country has different expat tax residency rules. You mentioned the US one, if you’re only arriving there for the first time at the back end of the year, it’s likely that you will be a non-resident for that year that you arrived-

Brett Evans:                        That’s right.

James Ridley:                     That calendar year.

Brett Evans:                        Yeah.

James Ridley:                     So, from arriving first time ever, September, I’m not going to be a resident. And it’s likely that if you seek the right advice over there as well, they’re not going to declare you a resident, so-

Brett Evans:                        It’s a good win.

James Ridley:                     Yeah, it is a good win, it means that income in that calendar year is not going to get captured by the IRS but then obviously, first of January, boom.

Brett Evans:                        Boom, you’re on again, yep.

James Ridley:                     You’re in the system. Obviously, you’ll need to do some relevant filings.

Brett Evans:                        Yeah.

James Ridley:                     But every country’s different, so it can be a case where you might leave Australia being a non-resident as of this day, but that country you just landed in says, “oh hang on, you’re actually a resident of this country, but we’re going to look back a few months before you actually left Australia.”

Brett Evans:                        That’s right, yeah.

James Ridley:                     So, that’s what’s frustrating, and that’s why, I suppose Australian expats, they need to get advice.

Brett Evans:                        Yeah, that’s right, and it’s amazing, 15 minute chat, just not even going into the details, just having that 40 thousand foot general chat, this is what I’m looking at doing, what’s the red flags?

James Ridley:                     Yeah.

Brett Evans:                        And suddenly they know it, now they can either address it, or they don’t but at least you’re aware of what the implications are of making that move is.

James Ridley:                     Yeah, absolutely.

Brett Evans:                        Absolutely.

James Ridley:                     Like you said, the 40 thousand view, okay you’ve got these bits and pieces going on, have you addressed this yet? Why haven’t you lodged your tax return? Does that carry capital gains tax? Did you do deemed disposal? Okay, you can do this. So, addressing it from the 40 thousand view, and then obviously getting granular.

Brett Evans:                        Yeah.

James Ridley:                     I mean, that’s the way to go about it and, like you said, I think Australian expats, when they go overseas, yes this sort of thing, it’s the last thing on their mind, they don’t want to deal with it because it’s stressful.

Brett Evans:                        Yeah, that’s right.

James Ridley:                     And it’s usually a case where they’ll look at addressing it maybe after year one, year two.

Brett Evans:                        They’ll have good intentions but yeah.

James Ridley:                     Yeah. But the more they sort of put it off, the heavier weight it becomes on their shoulders, and then they leave it to a point where it’s like ah, crap, I’ve gotta get something done. And then, when they speak to a professional, they’re like shit I’ve probably left some things a bit late here.

Brett Evans:                        Yeah.

James Ridley:                     I’m going to be in for maybe a small tax bill-

Brett Evans:                        Eighteen months down the mark, you’ve realised you can’t go back in time and make changes.

James Ridley:                     Yeah.

Brett Evans:                        Whereas, if they just had that quick chat before they went, they could shuffle the deckchair, so to speak, and position themselves in a far stronger situation to make the most of where they’re moving to.

James Ridley:                     Yeah, absolutely right. I mean, all the inquiry’s that I’ve had it’s a case where it’s either an individual that’s been overseas for 18 months.

Brett Evans:                        It’s always the 18 months, it’s 12 to 18 months, you can almost see-

James Ridley:                     It’s almost like 18 months is the red flag, so okay, we’ve been away for a while now. Or I’ve received this funny letter from my bank about expat tax residency.

Brett Evans:                        Yeah, that’s right, yeah.

James Ridley:                     They’re asking for a tin or something like that.

Brett Evans:                        Yep.

James Ridley:                     So, I mean more so on the data fees and everything getting shared, I had a client the other day, they’ve just headed over, obviously they’ve been overseas for six months now, but they received a letter from Commonwealth Bank Australia saying “hey, we’ve realised that you’re overseas.”

Brett Evans:                        Yep.

James Ridley:                     They haven’t actually put anything out there that they are overseas, so it just goes to show that where they’re located, that tax system is obviously sharing data with the ATO which knows, the ATO’s contacted Commonwealth Bank, online system’s said “hey, this person’s overseas, might need to update your system”, a letter goes out to the client. So yeah.

Brett Evans:                        And off you go.

James Ridley:                     Yeah, exactly right.

 

Pre-Departure Review

 

Brett Evans:                        Cool Right then guys, I hope you enjoyed episode two of Expat Chat, one thing I actually want to mention which is a product we rolled out late last year.

James Ridley:                     Yes.

Brett Evans:                        Which I think is invaluable for expats, of course I’m going to say that because we did it.

James Ridley:                     Yeah.

Brett Evans:                        But, quite often people don’t need the full gamut of financial advice, they just need to be aware of the situations, and we rolled out a product called a Pre-Departure Review.

James Ridley:                     Yes.

Brett Evans:                        Where you’re able to go online and fill in your details, and you will get a customised report sent back to you within one working day that outlines the key considerations that you need to be aware of.

James Ridley:                     Yes.

Brett Evans:                        You know, charging 295. It’s not a small amount, but it’s not a massive amount.

James Ridley:                     No, but I mean further on that, it’s usually the case that if they’ve done the report, I’m more than happy to go through that report with them after as well. I mean, they’ve got all the key information. They’ve got a lot of the information they need to actually go and update certain things so they’re not going to get caught out in 18 months time, and I’m always happy going through that report, doing a bit of a consult, and just running through it, okay this is what this means, if there’s anything they don’t understand. Or they could always just email us.

Brett Evans:                        Yeah, well I think the big thing is, there’s little things that make a big difference, like deemed disposal, you know you had that case with the client who wasn’t aware of deemed disposal, went overseas, was sitting on shares, they should have on paper disposed of them before they left. In which case, all the massive gains-

James Ridley:                     Huge.

Brett Evans:                        We’re talking seven figures here guys.

James Ridley:                     Huge.

Brett Evans:                        Would have been tax free.

James Ridley:                     Yeah.

Brett Evans:                        However, because they didn’t get that right advice at the beginning, even though they’ve been overseas for a long period of time, they will pay capital gains tax for the whole lot.

James Ridley:                     Oh, absolutely, I mean that case, we need a sort of, yeah it’s a bit of a complex strategy, I won’t get into it.

Brett Evans:                        Yeah, certainly if you are interested in looking at the Pre-Departure Review, you can just Google Atlas Wealth Management, Pre-Departure Review. Or just go to http://www.atlaswealth.com.au and if you go to the top, where we talk about how we can help, it’s the first item there on the menu. So James, thanks very much for joining me again today, and I look forward to many more to come.

James Ridley:                     Absolutely.

Brett Evans:                        Take care.

 

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