Buying Australian Property whilst Overseas

Information and Research for Australian Expatriates in Asia
Statistics
According to banking group HSBC’s Expat Explorer 2011 research:
> 35% of Australian expats overseas are earning over US$201,000, compared with 25% of
expats in general.
> The UK and United Arab Emirates are currently home to a higher number of Australians
(24% and 10% respectively) enjoying strong earnings.
> 74% of Australian expats overseas report a higher disposable income while overseas.
> 46% of Australian expats are using their higher disposable income to buy property
back home.
> The vast majority (87%) of Australian expats claim to have complex finances, and 50%
make their own investment decisions without consulting an adviser.
> Only 48% of the Australian expats surveyed have a financial adviser, while more than
half rely on family and friends for financial advice.
The study also noted regardless of the destination, most Australian expats (75%) did not
organise their finances till after they moved.
Cash flow strategies
Many international assignees rent out their home when posted overseas for additional
cash flow.
There are a number of options to consider about what to do with this extra money
including buying foreign or Australian investments, contributing to super, or reducing
existing debt.
However, some expats lack discipline and tend to spend any extra money they receive,
potentially wasting financial opportunities while overseas.
Committing to a structured, flexible and disciplined framework of investment or savings
commitments while offshore is one of the most critical strategies to adhere to in order to
make the most of an international assignment.
Resident versus non-resident status
The tax consequences are different for residents and non-residents.
An understanding of the criteria for classification as a ‘non-resident’ for tax purposes
and whether this is a benefit for the expat from a financial perspective is crucial.
Understanding Australian tax is only half the equation.
Investment decisions
An international assignee’s investment strategy should not be left to stagnate due to
an overseas posting.
Typical questions that need consideration include whether the international
assignee’s current home should be sold before departure and whether one should be
purchased in the new country.
If the international assignee is a non-homeowner, should a home be purchased and
rented out?.
Another consideration is whether it is better to rent or buy in the adopted country.
If buying offshore makes financial sense, it is better to know this in advance so
employment deals can be structured to allow employers to fund a home loan
repayment amount to the equivalent value of rent paid.
Additionally, thought needs to given as to whether the expat should keep making
contributions to managed fund investments back home, or whether it is better to
invest in similar products in their host country.
Asset allocation
Questions need to be asked on how investments are taxed in both countries and
whether all investments should be kept in one jurisdiction.
Superannuation
Deciding whether to contribute to an Australian super fund or a foreign retirement
savings scheme, and the tax implications of both, needs to be given careful thought.
In the case of self-managed super funds (SMSFs), it’s very important that you’re clear,
particularly if you go offshore, [regarding] the issues around who has got control of
[the] fund.
If you go offshore and you remain trustees, [the fund] can be deemed non-compliant.
There are significant risks and [tax] penalties with that.
Accommodation
Questions need to be asked on how accommodation is being provided offshore. Will
the employer be paying for rent and the other associated costs with housing?
Insurance and health cover
It is important to consider whether or not the expat’s employer will provide life
insurance and also private hospital cover, and if so, will it be offered to the entire
family? Will the cover be adequate?
Repatriating funds
Given the volatility of currencies, and the ever-increasing strength of the Australian
dollar, decisions will need to be made around the timing of sending funds back home.
‘If you’ve got the individual being paid offshore and they’re moving funds back to
Australia, you’ve got to think about how we convert those funds back.
‘Do we do it in one hit? Do we dollar cost average it? Who is going to exchange the
money? Is [the Australian dollar] at all time highs now?’
Maintaining client discipline
Abbott stressed it is crucial to ensure that international assignees stay disciplined and
keep track of their finances while overseas.
In his experience, a number of expats have displayed a ‘dereliction of responsibilities’
while on assignment, and consequently, their net worth did not improve after their
return to Australia.
‘There are a lot of attractions [overseas]. It’s very easy to get caught up in the
extravagant expat lifestyle and then just spin your wheels …’ he said.
Western Expats Working in Asia-Pacific
In general, Asia-Pacific countries have relatively low tax rates.
In countries popular with Australian expats, such as Hong Kong and Singapore, income
tax rates run at around 15%.
However, while tax regimes in the Asia-Pacific region are typically lenient, expats need
to be mindful that they are often required to pay the income tax they owe as a lump
sum at the end of the financial year, as companies do not deduct income tax
automatically from payrolls every month.
Broadly speaking, the financial year in Asia-Pacific countries runs from January through
till December, so international assignees need to understand that income tax is due to
be paid generally in January or February.
So, it’s the cash flow planning that has the most impact on the client, rather than the
tax laws themselves. If you spend all the money you earn, you could be in trouble
come tax time.
Financial Planning Considerations for Expats
Relocating overseas is a big change and comes with inevitable consequences, such
as the stresses of blending in with a different culture, dealing with a flood of new tax
and legal rules, while also having to manage assets back home.
To assist international assignees with these issues, it is critical to establish a clear
framework and strategy and an effective financial plan.
Abbott observed that international assignees face two key challenges — financial
and lifestyle. Within these two categories, decisions need to be made during three
critical phases:
> prior to leaving the home country
> while offshore
> prior to returning home.
While there are definite financial opportunities to be taken advantage of overseas, a
clear framework must be applied and the timing of the implementation of any
strategy is critical.
Asset allocation
Questions need to be asked on how investments are taxed in both countries and
whether all investments should be kept in one jurisdiction.
I look forward to creating a communicative synergistic partnership and uncovering
opportunities and options that might benefit your current and future financial
situation.