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Exfin Blog on Current Issues impacting Australian Expats

Vicorian State Budget - Substantial Land Tax Increases - May 23, 2023

The Victorian State Treasurer has just unveiled a "COVID Debt Levy" which is intended to raise $8.6 billion over the next four years and will remain in place until 2033.

An important aspect of this levy includes a reduction in the threshold for Victoria's land tax - which doesn't apply to main residences - from $300,000 to $50,000. An annual charge of $500 will apply to affected properties valued between $50,000 and $100,000 as part of the 10-year levy, and a charge of $975 for property landholdings worth between $100,000 and $300,000. In tandem, land tax rates for properties above $300,000 will rise by $975 plus 0.1 per cent of the land's value, and the absentee owner surcharge rate will increase from 2 per cent to 4 per cent.

Additionally, the government announced it will remove the payroll tax exemption for the top 15 per cent of non-government schools by fee level. Budget papers suggest about 110 schools will be affected, involving $134.8M, when it comes into effect in 2024/25. School fees will inevitably be under pressure.

American Express withdrawing from Australian FX services - May 22, 2023

We understand that Amex is currently “decommissioning” its foreign exchange and International Payments offering in Australia and Singapore - in fact Amex will no longer provide foreign exchange services for the majority of its customers outside of the United States by the end of 2023.

Amex has indicated that it will individually contact customers to discuss the local implication of the changes and provide support in terms of transitioning to alternative providers. Fortunately, the market is very competitive and well serviced, so we don't anticipate significant problems for individuals and businesses, except in terms of transitioning to new processes and systems. Alternatives include OFX, an Australian business quoted on the ASX, with whom we have had a very long-standing relationship and whom we do not hesitate to recommend.

Federal Budget a non-event for Expats - May 11, 2023

The Australian government's recent Budget announcements featured no changes of significant relevance to expatriates. This included no mention at all of any pending changes in relation to how tax residency may be determined - confirming our view that the earliest that these changes could come into effect would be July 1, 2024.

Expats should note however that the budget contained confirmation that the government will proceed with its previously announced measure to reduce the tax concessions available to individuals with a total superannuation balance exceeding $3 million, from 1 July 2025. There is no indication that the $3 million cap will be indexed, and consequently this may have implications for expats looking to retire back into Australia in the longer term in terms of their investment profile.

Australian Residential Property Prices - Recovering or a Temporary Plateau? - May 1, 2023

For Australian expat hoping that increasing interest rates would result in further falls to real estate values in Australia, and an opportunity to purchase, it appears that real estate values have stabilised -but it is unclear whether this represents a turning point or simply a plateau ahead of further interest rate rises.

In the words of CoreLogic, “A significant lift in net overseas migration has run headlong into a lack of housing supply. While overseas migration would normally have a more direct correlation with rental demand, with vacancy rates holding around 1% in most cities, it’s reasonable to assume more people are fast tracking a purchasing decision simply because they can’t find rental accommodation.”

In summary, most of the major capital city markets appear to have bottomed out, with the potential exception of Hobart, and indeed both Adelaide and Perth seem to be the process of holding onto their Covid price gains, largely because they still remain more affordable than other major markets. Regardless, we continue to recommend that expats consider arranging financing in principle, if they have any intention of purchasing in Australia this year.

Kiwis in Australia - A new fast track to citizenship – April 21, 2023

The Australian government has just announced that with effect from July 1, 2023, New Zealanders resident in Australia - current special category visa holders - will have easier access to Australian citizenship provided they meet a four year residency threshold and other normal eligibility requirements. They will not be required to first become permanent residents.

The government also flagged aligning voting entitlements between the two countries – Australians living in New Zealand already have restricted voting rights after one year of residency, but only New Zealanders with dual citizenship can vote in Australian elections.

Singapore Announces Closure of CPF Accounts for Non-Citizens/Permanent Residents - April 12, 2023

The Singapore government has announced that it will require members of the Central Provident Fund (CPF) who are neither citizens or permanent residents to close their accounts by March 31, 2024.

Note that the CPF is not regarded as a foreign superannuation fund (FSF) for Australian tax purposes, and therefore the entire amount of the fund exceeding employer and employee contributions may be subject to tax at Australian marginal rates on withdrawal. For individuals tax resident in Australia the required withdrawal may therefore give rise to tax implications, and it may be appropriate to seek tax advice in terms of the extent of any tax exposure and whether this can be reduced by timing withdrawals over the next year and making concessional superannuation contributions.

Note from a practical perspective that Singapore government intends to notify impacted individuals individually, based on the contact details held by the CPF - we expect these will often be out of date. Therefore, it may be years before certain individuals become aware of the fact that their CPF balances are not earning any investment income - so, we would encourage expats to communicate these changes to any friends or colleagues that may be affected.

Australian Visas - "Some Improvement, but work still to be done" - March 25, 2023

The Australian Department of Home Affairs is trumpeting an improvement in visa processing times, but the improvements have largely been in the issuance of temporary visas - see the table below. In terms of the admittedly more complex permanent visa applications, skilled permit applicants are still facing processing times of up to 6 months, while some partner visas extend out to 8 months.

Nevertheless, it appears that some progress has been made, and hopefully this will also apply to the processing of Australian passports, which have the dubious distinction of being the most expensive in the world.

A reminder to Foreign owners of Australian property: Vacancy Fee and Register of Foreign Ownership - March 8, 2023

As we mention elsewhere on the site, a vacancy fee is payable by certain foreign owners (not Australian citizens or permanent residents) of Australian residential property if their property is not "residentially occupied or genuinely available on the rental market" for at least 183 days in a 12 month period. The vacancy fee applies to foreign persons who made a foreign investment application to purchase residential property on or after on May 9, 2017 and requires them to lodge an annual vacancy fee return.

For the purpose of the vacancy fee, a residential property is considered, "residentially occupied, or genuinely available on the rental market", if:

  • the property owner, or a relative of the owner, genuinely occupied the property as a place of residence; or
  • the property was genuinely occupied as a place of residence subject to a lease or licence with a term of at least 30 days; or
  • the property was made genuinely available as a place of residence on the rental market, with a contract term of at least 30 days.

Note that properties made available for short-term leases of less than 30 days (including via web-based vacation rental sites such as Airbnb) do not meet the above criteria.

There are a number of situations where a foreign person may be exempt from being liable for a vacancy fee, including where legal ownership of the property has changed during the year, the property has been undergoing substantial repairs or renovation or the property is part of an estate being administered. Additionally, should a property cease to be owned by a foreign person during the course of a vacancy the vacancy fee obligation will cease to apply.

As regards the amount of the fee, it will generally be equivalent to the residential land application fee that was paid by the foreign person at the time the application for FIRB approval to purchase the property was made. The current minimum (July 2022) fee is $13,200 for applications involving the purchase of property valued at $1million or less.

We believe there may be a significant under-reporting in this area and that there may be a large number of non-compliant foreign owners who risk substantial penalties. The expectation is that the accommodation/housing crisis will drive authorities to more effectively identify unoccupied properties in the short to medium term and upgrade compliance activities - experience overseas have shown that is relatively easy to identify unoccupied properties.

Compliance activities should also be improved as a result of the (long overdue) introduction of a new Register of Foreign Ownership of Australian assets, to be administered by the ATO, on July 1, 2023.

Reserve Bank increases interest rates again by 0.25% - March 7, 2023

On March, the Reserve Bank increased the cash rate for the 10th consecutive time by 0.25% points, bringing the current cash rate to 3.6%, and signalled that:

"The board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary,"

Consequently, the market expectation remains firmly that there will be at least one further interest rate increase, but that depending on market conditions the RBA may then pause. Nevertheless, the increase in base rates has been extraordinary over such a short period, as illustrated in the chart below.

In terms of economic impact, we are still yet to see earlier cash rate increases fully feed through into mortgage rates and there are a significant number of borrowers due to come off fixed rates during the course of this year - referred to as the "fixed rate cliff" - and see their monthly payments double as a consequence.

The slide in house values has paused recently, largely because of a lack of stock, but it is likely to resume on the basis of "yet more" interest rate increases and the restrictions they indirectly place on the ability of individuals to borrow.

Super: Changing taxation of Large Funds - February 28, 2023

The government wants to legislate an objective for superannuation, and the proposed wording is:

"To preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way"

Adopting this objective has a number of consequences, and the most consequential is probably an attempt to disallow early access to superannuation for house purchases, as proposed by a number of Liberal politicians. We find it hard to believe that they want to "fan the flames" of an already overpriced property market, but that's their position.

In any event, one subsidiary result of the focus on superannuation funds, has been an announcement today by the Treasurer that from 2025-2026 the concessional tax rate applying to future earnings on super funds with balances over $3 million would be 30% - which is double the current concessional rate of 15%. Fewer than 1% of all current superannuation accounts have more than $3 million in them so the impact will be narrow in terms of the number of individuals impacted. However, the Treasurer has indicated that it is not the government's intention to index the amount, so the impact will widen over time.

The two-year intervening period seems long, extending into the next parliament, but fund administrators have argued that many of these funds have illiquid investments that will take some time to manage appropriately.

Wondering about the impact of interest rate increases in Australia? - February 16, 2023

For expats wondering about the impact of successive interest rate rises on the "average Australian" a good barometer is the ANZ Roy Morgan consumer confidence survey. After the last meeting of the Reserve Bank, where it was indicated that there were a "plural" number of rate rises to come, the market locked in a peak rate of 4.1% - some 0.5% higher than the level predicted before the meeting.

If that occurs, it would constitute an increase of 4% in the base rate in 14 months, much faster and greater than anything that has been seen in Australia since the 1990s. It is certainly attracted the public's attention, and they don't believe the RBA is bluffing. Consumer confidence levels have now dropped below those seen during the Covid lockdown era - see the chart below:

It's hard not to see this translating to a recession during the next two years, even if RBA forecasts don't (yet) support that outcome. Certainly, the increases will cause extreme hardship in certain parts of the economy, impacting retail sales and continuing the slide in real estate prices.

Australian Super Fund Performance: "An Awful Year" - January 22, 2023

For expats wondering how their Australian super funds have performed recently, the answer in most cases will be, "horribly".The charts below illustrate the Top 10 best performing balanced Super Funds over the calendar year ending December 31, 2022 and over the last five years, according to SuperRatings.

As you can see, the fund returns over the 12 month period to December 31, 2022 were exceptionally poor - with the top performing fund delivering growth of just 1.7%. In comparison though, AustralianSuper's balanced fund, which ranks second in performance over the last 10 years, actually delivering a loss of 4.8% - which was about the median for all balanced funds. The main loss drivers over the last 12 months have been real estate and international shares, with the latter falling 16.4% in hedged terms, led by an 18% drop in the US market. Funds appearing in both the 1 year and 5 years performance lists are highlighted in "blue".

More properties languishing on the market - January 6, 2023

The quick reversal in the Australian property market, instigated by rapidly increasing interest rates, has markedly impacted the number of "stale" properties - those that have been listed on the market for more than 180 days - across almost all Australian capital cities.

There were 43% more stale property listings in Sydney in December 2022 than in December 2021, and the corresponding figure for Melbourne was 27% - Hobart's figure was a very significant 214%, perhaps reflecting the fact that the boom in Hobart/Tasmania was over a longer period, and even more substantial, than the mainland cities.

In Adelaide, however, where the boom came a little later, property prices have not been regressing and there has been an actual decline in stale property listings. One impact of the boom has been to lift the values in the minor capital cities relative to Melbourne and Sydney and there is every reason to suspect that they may not fall back - based on their continued better relative affordability.

These figures, together with the likelihood of increasing interest rates in the coming months, suggests that expatriates looking to buy back into Australia needn't be in a rush. The emphasis should be on arranging access to finance in principle, so there is a clear understanding of what mortgage finance would be available.


Australian Reserve Bank lifts Cash rate again by 0.25% to 3.10% - December 7, 2022

The RBA has again lifted the cash rates by 0.25 percentage points, from 2.85% to 3.10% - the eighth consecutive rate increase this year. This will continue to feed into mortgage rates over the next few weeks - with actual mortgage rates continuing to substantially lag increases in the base rate.

The recent lower increases likely reflect a concern that the RBA does not overcorrect and accelerate recessionary pressures, particularly given that consumers are yet to feel the full impact of recent rate hikes. Consumer behaviour in the Christmas period will be a major driver of where we see rate increases eventually "top out", but we are likely to see at least another 0.5% increase in rates, with most of the major banks predicting a rate peak prediction of 3.85%.

In dollar terms, the increase in interest rates since May has seen the monthly payments on a 25 year principal and interest mortgage of $500,000 and $1M increase by $834 and $1,668 respectively and impact affordability significantly - particularly impacting house prices in the more expensive capital city markets of Sydney and Melbourne.

Australian Director IDs - November 28, 2022

There are a number of Australian expatriates overseas who will need to apply for an Australian director ID. You require an ID if you are the director of:

  • a company registered with ASIC or the office of indigenous corporations
  • A corporate trustee - perhaps of a self managed superannuation fund
  • a registered Australian body, including incorporated associations registered with ASIC, and
  • a charity or not for profit that is a company or aboriginal and Torres straight Islander Corporation

Following the above, there are large numbers of qualifying Australians who need to apply for IDs, and this needs to be done before November 30, otherwise substantial penalties may apply.

In practice, many individuals have yet to make the required application. In fact, the media is currently reporting that, "almost a million Aussies could face a $13,200 fine from the Australian Taxation Office (ATO) for forgetting – or avoiding – a straightforward act."

If the numbers are indeed so substantial, we believe that it is almost unavoidable that the application deadline will be pushed back - but you can't rely upon this happening, and any expats who are qualifying directors need to make applications as soon as practicable to ABRS.

Post Script: As suggested above, the deadline for applications has now been extended - but only until December 14, 2022.

Australia: Housing Market forecasts – October 28, 2022

As the Australian housing market decline progresses, we are beginning to see some more refined analysis about what this might mean for individual capital city markets – beyond a simple assumption that what goes up must come entirely down. Some of the individual markers, such as Adelaide, Perth and Darwin were more affordable markets prior to the run up during Covid, and may not return to the previous levels of affordability.

The analysis below is from ME Bank and suggest that the two major markets, Sydney and Melbourne, plus Hobart which had seen enormous increases in prices over the last two years, will see continuing, significant falls prompted by ongoing interest rate increases and affordability challenges. This forecast probably predates the latest inflation figures which suggests that the RBA may feel the need to again accelerate interest rate increases and therefore further downward pressure on prices.

Australian Federal Budget: Items of Relevance to Expats - October 26, 2022

There were a few, if any, measures announced in the most recent Federal Budget of direct relevance to Australian expatriates. This was a conservative, domestically focussed Budget concerned to ensure that it did not add to inflationary pressures and that Australia is well-placed to manage through what appears to be a difficult two year horizon.

However, we would make a few comments regarding what was said, and not said, in the Budget:

  • There was no mention of any introduction of new tax residency rules. As we mention above, this is a very domestic Budget, and therefore while there is some possibility that there is a technical group still working on the introduction of the new tax residency rules by June 30, 2023 the fact that there was no mention in the Budget means that the introduction of new residency rules may have receded to 2024, or later. It wouldn't appear to be a priority of the current Government, and there probably isn't "enough money" in the new measures to justify a high prioritisation.

  • The Government indicated that it would defer the start date of a number of legacy tax and superannuation measures to allow sufficient time for policies to be legislated. These measures include, "the 2021–22 Budget measure that proposed relaxing residency requirements for SMSFs". Again, consistent with the above, the Government is signalling that it doesn't believe this is a priority matter.

  • Not of direct relevance to expatriates, but possibly to those with partners who are neither Australian citizens or permanent residents, the Government indicated that following a doubling of FIRB fees for residential land and property purchases in July, that penalties for non-compliance would also double with effect from January 1, 2023.

Australia and a (potential) global recession - October 15, 2022

While unemployment in Australia is at near 50 year lows there are very considerable concerns about pending recession. While consumer spending in Australia has not materially weakened (yet), consumer confidence has very significantly decreased - as can be seen in the chart below.

It's not hard to see why; a continuing war in Ukraine, resurgent inflation, a bear equities market, an energy crisis in Europe and elsewhere, UK economic mismanagement, OPEC production reductions, Chinese economic problems and the list goes on.

Internationally, while Australia might benefit from being a net energy exporter, and the market is not predicting a significant recession as yet, the IMF has consistently downgraded forward growth projections (see chart below) and it is hard to see Australia withstanding a significant international downturn. The ASX also seems to slavishly follow the US market regardless of realities.

The message for expats is that Australia is unlikely to offer shelter from what appears to be a potential global recession - what is most relevant is exactly how the Australian employment market reacts to any downturn and unfortunately we only usually get to see lagging indicators when it comes employment rates.

Housing Demand in Australia - September 15, 2022

Australian expatriates returning home, and expatriates on assignment to Australia, need to be very aware that Australia, like many countries across the world, is facing a significant housing shortage and care needs to be taken to ensure that you have arranged accommodation well in advance of any arrival.

The table below illustrates that Australia is experiencing .." the lowest national rental vacancy rate since 2006 and is at unprecedented levels both in duration and scope when considering the sustained lack of rental properties over the past six months as well as the geographical extent of the crisis whereby all cities and regions are experiencing rental accommodation shortfalls."*

What has been evident over the last few months has been a particular tightening in Sydney and Melbourne - not yet down to the levels being experienced in the other capital cities - but a clear trend is apparent.

* SQM Research

Land Tax - Queensland introduces a Tax based on Total Australian land values - September 7, 2022

Following a meeting with other state Premiers, it has just been reported that the Queensland Premier, Annastacia Palaszczuk, has decided not to proceed with changes to the application of Queensland stamp duty as summarised above. More details will follow.

Land tax in Queensland is currently assessed on the value of all non-exempt landholdings within Queensland only - it does not take into account any landholdings in other States - as at midnight on 30 June each year. Different thresholds and rates apply to individuals,corporations, trustees and absentees.

Now, based on recent legislation, on and from the year ending 30 June 2023, Queensland land tax will be based on the Queensland proportion of the total value of all the Australian land owned by the landholder - unless a land holding is excluded, with exclusions including "principal places of residence".

These changes are questionable in principle - Queensland as a State Government is attempting to tax individuals on their national assets and it will invariably cause conflicts with other states - and, whilst largely impacting investors with properties in both Queensland and interstate, it may also unduly impact Australian expats. This is because expatriates having a home in Australia and perhaps a holiday home in Queensland, or vice versa, will invariably not be able to claim an exclusion for their principal place of residence if it is rented out.

Government flags some potential flexibility on new tax residency rules - August 27, 2022

Assistant Treasurer Stephen Jones reportedly told an Australian Chamber of Commerce event in Singapore in the week beginning August 22 that the new tax residency rules were in the Government's "in-tray" ahead of the October Budget and the 45 day limit was "being looked into". At least some attempt at communication and dialogue from the incoming Labor government, in very stark contrast to the previous LNP administration.

Any additional flexibility would be good news to many Australian expats working and living in countries with which Australia does not have a double tax agreement, such as Hong Kong. See our page devoted to the proposed new tax residency rules for more background and detail.

Higher value properties leading house price falls - August 18, 2022

Not unexpectedly, data over the last three months shows that it is the value of higher end properties that are being most markedly impacted by interest-rate increases which are effectively reducing access to finance. This is particularly the case with expensive properties located in Sydney and Melbourne, but the expectation is that the trend will extend to the smaller capital cities, where affordability has not been as stretched, in the short to medium term.

Significant falls in Australian house prices - August 1, 2022

Data just released shows that Australian house prices are falling at their fastest pace since the global financial crisis, with the major markets, Sydney and Melbourne leading the fall. Commentators also expect conditions to worsen and the downturn to further accelerate in the short term in the face of rising interest rates Many analysts are predicting Australian property prices, on average, to fall between 10 and 20 per cent (from peak to trough) — with the two most expensive cities, Sydney and Melbourne, likely to incur the largest falls based on the most stretched affordability. Despite recent falls, an average house in Sydney still costs around $1.35 million, while an average unit may fetch about $806,000 The RBA is due to meet this Tuesday (August 2) with the market antcipating a further 0.5% rate incraese up to 1.85% If the central bank delivers another double-sized rate hike on Tuesday (0.5 percentage points), as widely expected, that would bring the new cash rate up to 1.85 per cent - it was just 0.1% in May.

Super Fund Performance - July 31, 2022

For Australian expats wondering how their Australian superannuation funds are faring, the answer is that 2021-2022 has been a very poor year for investments returns - as illustrated in the charts below contrasting retuturns for the 10 Best Growth/Balanced funds over 1 and 5 years respectively - funds appearing in both lists are highlighted in "blue". The best performing balanced growth fund over the last twelve months was Hostplus with a return of just 1.6%, with many/most large funds recording negative returns.

With Australian and global equities falling 7% and 12% respectively during the reference period - and, global bonds down by 9.5% and Australian bonds by 10%, delivering poor returns to even defensive investors - the results can even be described as "relatively good".

As we mention elsewhere, Australian expats can continue to invest in super even while overseas but care needs to be taken to ensure that it represents the best investment alternative in their particular circumstances.

Australian Travel Advisories - the world is very gradually turning "blue" - June 30, 2022

The Australian Government maintains travel advisories for almost all the countries in the world, at 4 different levels - which we track on a world map usually the following colours:

  • Level 1: Exercise normal safety precautions - Blue
  • Level 2: Exercise a high degree of caution - Green
  • Level 3: Reconsider your need to travel - Orange
  • Level 4: Do not travel - Red

Gradually over the last week we have seen more countries returning to their "normal" Level 1 ratings - these countries include Japan, South Korea, Denmark, Iceland, Norway, Sweden, Estonia, Latvia and Croatia - hence our comment that the world is gradually "turning blue".

Apart from being important when planning overseas trips, the travel advisories can be important in terms of arranging travel insurance and also life insurance - in the latter case, Australian insurers will only typically consider applications from individuals resident in countries where travel advisories are at level 1 or 2.

June has been a punishing month on the Australian markets - June 30, 2022

June was an awful month for both Australian equities and dollar - in our updated chart below you can see that the ASX 200 dropped nearly 9% over the months - with extreme volatility and softness continuing - while the Australian dollar dropped almost 4.5% against the US dollar.

As most expats will be aware, June has been a very poor month for stock exchanges around the world and the ASX has followed world markets. What's not more widely appreciated has been the decline in the AUD against the USD, as there has been a traditional flight to the USD as a "safe haven currency". That has left the AUD very undervalued on most assessments - but that doesn't matter much in the current environment.

The only small, faint light on the horizon for expats may be the ability to enter the Australian property market on more reasonable terms as prices moderate or fall - possibly quite substantially in the short term in both Sydney and Melbourne.

Superannuation Changes on July 1 - June 29, 2022

There are a number of changes to super that come into effect on 1 July, 2022 which expats should generally be aware of, particularly since some provide a bit more flexibility in terms of making non-concessional contributions to super after retirement or are return to Australia. We have summarised the three major changes below:

  • The superannuation guarantee is increasing from 10% to 10.5% - and is planned to reach a maximum of 12% on January 1, 2025
  • "Downsizer" payments, which previously allowed individuals aged 65 and older selling their family home to contribute up to $300,000 of the proceeds to superannuation have now been extended to individuals aged 60 and above.
  • A "work test" previously applied to individuals wanting to make personal or salary sacrifice contributions to super from ages 65 to 74 - the work test now no longer applies unless the individual is seeking a tax deduction for their personal contribution. Up to age 75, individuals can make non-concessional contributions to superannuation as long as they have less than $1.7 million in their fund and meet the various cap requirements.

Importantly, what appears to not be changing are the residency requirements around self managed super funds (SMSF) and small Apra Funds (SAF). In the 2021 Budget the Government announced that it intended to relax the residency requirements for both SMSFs and SAFs by extending the "safe harbour" for the central management and control test from 2 to 5 years for SMSFs and removing the "active member" test for both fund types. These changes were intended to take effect from 1 July, 2022 but with no draft legislation and Parliament not scheduled to sit until July, 2022 we expect that the earliest these measure could have effect is now probably 1 July, 2023.

Double digit decreases in Australian property prices forecast - June 16, 2022

Property prices across most Australian cities are expected to fall by double-digit figures according to Australia's leading residential lender - CBA - see the table below. The RBA's latest increase to the cash rate of 0.5% was the largest over twenty years, but has since been overshadowed since by a 0.75% increase by the Federal Reserve as central banks around the world try to get ahead of inflation.

The early brunt of price decreases will be felt by Sydney and Melbourne, but even more affordable markets such as Adelaide and Brisbane will struggle to maintain momentum.

At some point, given an AUD which appears undervalued, the market might represent an "entry point opportunity" for expats during the latter course of the 2022.

Labor election victory: Impact on expatriates - May 23, 2022

The Labor election victory poses no obvious upsides or downsides for Australian expatriates. Labor adopted a "small target" approach to the election and basically mirrored the LNP's position in relation to most tax and financial matters - effectively relying upon the electorate's distaste for Morrison and a decade's worth of inaction on climate change to give them victory, although at an historically low share of the overall vote.

Given that the Tier 3 personal tax changes will proceed, and changes to GST are incredibly sensitive, particularly with significant current cost of living pressures - Labor has left itself with very few options in terms of Budget repair, although multinationals in Australia can expect to be - and should be - the focus of renewed attention in terms of their tax arrangements.

Although Labor can be expected to be more flexible than the LNP when it comes to listening to expatriates regarding the proposed new tax residency rules, particularly the prospect of being considered resident after 45 days in the country, major changes are probably unlikely at this stage and Labor may be disinclined to consider any changes which reduce revenue, given the above comments.

Overall, it's unfortunate that politics has reached a point in Australia where neither major party seems inclined to take the "long view" on policy matters, and seem unable or incapable of selling or communicating complex and difficult matters to the electorate. The hope is that Labor will surprise in this regard and be less purely "transactional" than the last Government.

Interest Rate Increase(s) Pending in Australia: Monthly Repayment Impact - May 1, 2022

As in many parts of the world the conversation in Australia is all about when, and not if, interest rates will increase and their impact on the housing market. On balance, the expectation is that the Reserve Bank will announce the first increase in the current 0.1% cash rate next Tuesday - perhaps a .15% or .25% increase - since November 2020.

This is just the beginning and views differ as to where interest rates might peak. The Commonwealth Bank expects the cash rate to peak at 1.25 per cent in early 2023, while Westpac predicts a peak of 2 per cent in mid-2023. ANZ expects the cash rate to reach 2 per cent by the end of 2023, and NAB has forecast a peak of 2.25 per cent by the end of 2024. Note that fixed rates have already pre-empted the RBA, they have risen considerably in recent months and their share of nmortgages has dopped from 46% last July to just above 25% in February.

What does this mean for repayments - the table below illustrates the impact on home loan repayments of interest rate increases ranging from 0.15% to 2.0% based on a 30 year principal and interest mortgage.

Federal 2022 Budget: A Non-Event for Australian expatriates, except that nothing was said about Tax Residency – March 30, 2022

Yesterday's Australian Federal Budget turned out to be a non-event for Australian expatriates, with no announced changes having any appreciable impact on non-resident Australians. We have however provided a summary of the major announcements below:

  • The Low and Middle Income Tax Offset (LMITO), which is only applicable to resident taxpayers, was increased by $420 for the 2021-22 tax year to $1,500. Importantly, the Government did not announce a further extension of the LMITO beyond 2021-22 when it is legislated to cease.
  • There were no announced changes to personal tax rates for 2022-23. The Stage 3 tax changes commence from July 1, 2024 as previously legislated. Consequently, from 1 July 2024 the 32.5% marginal tax rate will decrease to 30% and there will have one big tax bracket between $45,000 and $200,000. See our personal tax tables.
  • The temporary 50% reduction in minimum annual payments for superannuation pensions and annuities was extended a further year to include the 2022-23 tax year.

When Parliament resumed on March 29 there were several Bills, covering tax, super and other measures, before both houses of Parliament. It is possible that some or all of these bills will lapse when the Prime Minister calls a Federal election, which is expected to be on the 14th or 21st of May, 2022. Importantly, no comment was included within the Budget papers regarding the proposed changes to tax residency rules - that being the case, there is every possibility that these changes may be delayed and not come into effect until the 2023 tax year.

Important Superannuation Changes introduce additional flexibility for expatriates - February 11, 2021

Recently legislated changes to superannuation, first announced in last year's Federal Budget, provide important additional flexibility for Australia expatriates intending to retire in Australia, and older Australians generally, to make significant additional contributions to their superannuation balance.

The changes, which we were concerned may have been delayed because of the current legislative programme and upcoming Federal election, provide significant strategic planning opportunities from 1 July 2022.

The legislated changes included:

  • removal of the work-test requirement for non-concessional contributions (NCCs) and salary sacrifice contributions, for individuals aged between 67 and 75
  • extended eligibility to make NCCs under the bring-forward rule to individuals aged under 75 at the beginning of the financial year
  • extended eligibility to make downsizer contributions to those age 60 or over
  • removal of the $450 per month minimum income threshold in terms of the application of the super guarantee payment by employers

Note that some of the provisions around age cut-offs are quite specific and subject to balance caps, so professional advice should be sought prior to making any contribution.

More people working remotely – November 9, 2021

With Australia at last opening up, it won't surprise many people that we are receiving many more inquiries about the tax impact of people working internationally on a remote basis. This includes both Australians proceeding overseas with the intention of continuing to work for their same employer in Australia, and Australians returning home who still continue to work for overseas employers.

These arrangements can be wonderfully flexible, but not necessarily simple when the tax aspects are considered. In short, you are typically taxable in the country in which you perform your duties, regardless of whether you are "paid" in Australia, or elsewhere. It really pays to obtain some professional advice before entering into these arrangements - as the area is complex, and the wrong decision taken early can take years to unravel. We provide more details on our remote working page.

New Smartraveller Advice - October 28, 2021

Almost a year ago, the Australian Government dispensed with providing individual country advice and effectively declared the rest of the world a "do not travel" zone.

However, as from October 28, the Government has resumed individual country travel advice - in advance of the resumption of more general travel into an outside of Australia. Go to the Smartraveller website for detailed country assessments or view our World Travel Advice Map.

Foreign Transfers – Supporting Documentation – September 24, 2021

Whenever we have discussed making foreign currency transfers into or out of Australia we have focused on the need for all individuals and entities to maintain appropriate documentation regarding the source of those funds. That is against the background of regular approaches being made to individuals by the ATO, often based on Austrac information and sometimes months or years after the transfer, seeking to confirm the source of funds.

That position now needs to be stressed further given a recent Taxpayer Alert (TA 2021/2) - Disguising undeclared foreign income as gifts or loans from related overseas entities. The main ATO focus is on the following behaviour:

"....the arrangements with which this Alert is concerned are ones where taxpayers are aware of their residency status, as well as the tax implications that flow from it, but attempt to avoid or evade tax on their foreign assessable income by concealing the character of funds upon their repatriation to Australia by disguising the funds received as a gift, or a loan, from a related overseas entity."

The alert specifically mentions that "genuine" gifts or loans are not the ATO's focus and indicates that they generally have the following characteristics:

  • the characterisation of the transaction as a gift or loan is supported by appropriate documentation
  • the parties' behaviour is consistent with that characterisation, and
  • the monies provided are sourced from funds genuinely independent of the taxpayer.

In terms of what supporting documentation is required for a gift or loan, the ATO indicates as follows::

"Appropriate documentation for a genuine gift will depend on the size of the gift and whether the nature of the relationship is one where gifts might be made in the ordinary course of that relationship. For larger gifts or where there is an atypical relationship between the donor and donee, this might require a contemporaneous Deed of Gift. We would also expect there to be evidence showing the donor's capacity to make the gift from their own resources as well as financial records reflecting the donor's transfer.

Appropriate documentation for a genuine loan would typically include a properly documented loan agreement that evidences the parties to the loan, its terms and relevant conditions. We would also expect there to be financial records showing the advance of funds and repayments of principal and interest."

Retiring into Malaysia? Perhaps time to think again – September 8, 2021

For Australian and other expats looking to retire into Asia, Malaysia has previously been one of the more attractive options - with a well structured foreign retiree program called "Malaysia My Second Home" (MM2H).

However, that programme was frozen in July 2020 on the basis that that it would be reassessed, and only recently has the Malaysian Government announced a reactivation in October 2021, but with significantly increased eligibility criteria and an announced intention to focus on "wealthier foreigners". See the table below for more details.

These changes are entirely within the Government's prerogative, but our major issue is that the new criteria are apparently going to be applied to existing visa holders. So, for example, after a period of one year's grace, existing visa holders will apparently need to demonstrate that they have monthly available income of RM40,000, rather than the RM10,000 required previously. That's a 400% increase in the minimum income required, and the fixed deposit that needs to be paid into a Malaysia and bank has increased in some cases from RM150,000 to RM1,000,000 - a near 700% increase.

If this news is correct, and we would dispute whether Malaysia is attractive enough to compete on the new criteria with other destinations, we regard it as unethical for the Government to apply these obligations to existing holders. They should be "grandfathered" and either left to continue on until the end of their visa, then either meeting the new requirements or leaving the country. Either way, retiring into a country requires trust and stability in the local Government, and that no longer exists in Malaysia.

We can no longer recommend Malaysia as a retirement option and indeed we project a high probability that the new rules will fail, and be subject to reversal/review with 12 to 24 months. Even should that be the case Malaysia has done irreparable damage to its damage as a retiree destination, and perhaps intentionally.

Migration Approach needs a Thorough Review - August 8, 2021

Recent media reports suggest that nearly 15,000 permanent and temporary resident visas have been granted by the Federal Government since Australian borders were closed 15 months ago. These "business innovation" and "investment" visas typically require applicants to invest millions of dollars in personal or business assets in Australia, but have been very controversial in terms of their real value to the country.

More controversially, they seem to have allowed access to the country without the need for an exemption, whilst Australian expatriates have been unable for a variety of reasons to return home.

A relatively recent report Grattan Institute showed that the majority of Australians generally supported continuing migration, but the majority also thought that migration rates - currently reduced by virtue of the pandemic - were too high.

In these circumstances, why does the Government continually push migration even during a pandemic? Simply because it's an easy, lazy way to post economic growth.

We have significant doubts about the (net) value of innovation and business investment visas, compared to a focus on skilled, young professional migrants - a clear, economic rather than political, re-evaluation of Australia's whole migration apparatus is very much needed.

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