If so, it could affect your tax status! But more on this later.
A couple of articles ago I warned of the perils facing US
nationals who held offshore accounts or investments and were
not reporting them. This time we will consider the position
of Australian expats. The Australian tax regime is not as
aggressive as that of the US. Nevertheless, things are changing
and what might have been allowed to pass a few years ago is
now coming under greater scrutiny.
Boom years for Australian economy
The past few years have been good ones economically for Australia.
Unemployment has been low, the stock market has generally
outperformed other western markets and property values have
gone through the roof. The Aussie Dollar has also appreciated
strongly against the USD. But it hasn’t always been
the same. Barely five years ago I recall expats who were paid
in AUD complaining how hard it was to maintain savings commitments
in USD. No problem at the moment but it does show the danger
of investing in a currency other than your own.
Take care on return to Australia
If you have lived overseas for some time and have accumulated
offshore investments you have a limited time in which to report
them upon your return. You will no longer enjoy the tax-free
benefits of those investments so it may be worth considering
liquidating them before you return. You are allowed to retain
a small amount of foreign investment funds (FIF’s) but
beyond that the tax treatment will not be favourable.
Are you sure you are non-resident for tax purposes?
It could be a disaster if you had been accumulating wealth
offshore for many years believing it to be free of liability
to tax in Australia only to find you are determined to be
tax resident and subject to a whopping tax payment, even though
you thought you were non-resident as you spent only a limited
time in the country. But time spent in the country is no longer
the sole criterion that determines residency. Which brings
us back to the original question; do you keep a pet in Australia?
If you do, this in itself will not render you liable to be
determined tax resident but it is one of many factors that
are taken into account. These include keeping a residence
available for your stays, having children at school or university,
belonging to clubs etc. The problem is there is no crystal
clear definition of residency, no clear line to draw, hence
the importance of obtaining professional advice.
The positive benefits of expatriate status
If your expatriate status is confirmed there are many advantages,
apart from the attractions of the lifestyle you can enjoy
in Bali! You can invest offshore, which basically means your
investments can grow tax free. This does not mean that you
will not be liable to tax when you draw income from or encash
your investments; income is likely to be taxable wherever
you live, including Indonesia. But growth in the investment
itself will not be subject to tax as it would were it onshore.
Over a number of years this will make a significant difference
to the value of an investment. While some offshore centres
do not enjoy the highest reputations the ones generally used
by expatriates are strictly regulated and offer the highest
degree of security. But if you plan to return to Australia
in the near future the best strategy may be to build up your
onshore investments while you are overseas. This can still
be done from Indonesia. Again, if you are sure to be returning
to Australia then taking out a mortgage to buy one or more
properties can help you to build up tax credits to offset
against tax when you return.
The importance of seeking good advice
Financial planning is often put to the back of one’s
mind. It is something that can always be taken care of ‘tomorrow’.
But by tackling issues today there is a better chance to prepare
a path to future security and prosperity and dangerous pitfalls
can be avoided. I meet a lot of expats who, when asked where
they plan to retire, indicate they would like to divide their
time between Bali and their ‘home’ country. The
hope is often to legally avoid paying tax in either jurisdiction.
If this is the case it would be well worth taking proper advice
in both countries before making such an assumption. I would
emphasize here that I am not a tax expert. The comments I
have made are of a general nature. I do have access to specialist
tax advisers however and it is to these that I refer enquiries.
Professional advice does not come cheaply by the way, but
failure to use it can be a lot more expensive!
Colin Bloodworth is a senior adviser with Financial Partners
International. The views expressed are his own. If you have
any questions you may contact the writer at 021 520 8099 or
colin.bloodworth@financial-partners.biz
