Do you keep a pet in Australia?
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 firstname.lastname@example.org