CROSS CURRENCY LOANS

Thinking of investing in property Down Under? Interested buyers now have a choice to take out loans in foreign currencies when investing in Australian property, but how does this affect interest rates and profit margins? STEVE DOUGLAS offers his professional advice on cross currency loans and its benefits.

Q. I have heard I can get a loan to buy an Australian property in Singapore Dollars at a cheaper rate. Is this accurate? It sounds too good to be true; are there any surprises I should look out for?
When buying an Australian property, you have a number of choices with your finances, including the ability to borrow in a foreign currency such as Singapore or US Dollars. There is less choice for loans for Australian property in alternate currencies as lenders have been reluctant to offer these types of cross currency loans since the 2008 currency crash which saw many borrowers caught out with massive margin calls. This has resulted in lenders now requiring substantially higher deposits when borrowing in foreign currencies (30 percent or more); Australian loans typically require 20 percent deposit.

It is true that Australian interest rates have traditionally been higher than offshore rates and this trend is likely to continue as it is very much part of the financial culture in Australia to have reasonable deposit rates. As such, the cost of borrowing is correspondingly higher. Interestingly, we have seen Australian rates fall to their lowest levels in over 50 years and are now very affordable by traditional Australian standards. The Reserve Bank of Australia’s official rate was lowered to 2.25 percent in February 2015, a new low, and rates in Australia have been on the decline since the last peak in November 2010 when the official rate was last lifted to 4.75 percent.

The current 2.25 percent official rate equates to a loan interest rate of approximately 4.3 percent to 4.8 percent for borrowers once the Bank Margin has been applied. Although this is a record low in Australia, it is still high compared to other countries where the official rate is very low. Currently, rates are between zero percent to 0.25 percent in the USA, and in Singapore, it is 0.39 percent.

This does make lending in these currencies cheaper than in Australian dollars. However, in recent times, the gap is not as wide as bank margins are often wider to factor in the additional currency risk. This currency risk occurs when you borrow in a currency other than the currency of the property, and you become exposed to movements between the currencies that can change your equity in the property as shown in the table below:

 

Property Purchase Price

 

Lending Ratio

 

Net Equity

Starting Value

$500,000

 

70 percent

 

A$150,000

 

Australian Dollar Loan Value

 

AUD/SIN Exchange Rate

 

SIN Dollar Loan Value

Starting Loan Value

A$350,000

à

$1.20

à

S$420,000

AUD Weakens

A$400,000

ß

$1.05

ß

S$420,000

 

Property Value

 

Lending Ratio after Currency Movement

 

Net Equity

 

A$500,000

 

80 percent

 

A$100,000

 

 

As highlighted in the table above, if you borrowed in Singapore dollars initially with a 70 percent loan ratio, your starting equity contribution would be A$150,000. And if the Australian dollar strengthens, then your equity would be reduced in this case to A$100,000, due to the currency movement going against you.
You may have saved some interest, currently only about 1 percent per annum, so about $3,500 less interest per year, but in doing that you have lost $50,000 of equity. With currency, this movement can occur very quickly, so this loss can come as a surprise. It should be noted that had the AUD increased, then instead of an equity reduction, you would have made a currency gain on top of the interest savings, which is an ideal scenario. You need to be very mindful of the potential for the currency to move in either direction and be sure you are willing to accept the additional risk. You also have to assess the impact of having to put more deposit down initially, as this may reduce the leveraging and tax benefits available to you. Most importantly, the interest cost remains a tax deduction against your property rental no matter what currency the loan is taken out in.

It can be very confusing to try and decide whether to take a foreign currency loan and indeed to monitor it along the way.  Here are some simple rules to follow:

The Australian dollar has no risk or opportunity.
If you need a lower deposit, then AUD loans may be the only choice.
Always borrow in the currency most likely to weaken.
Don’t be lured by a lower interest rate as the exchange risk may be substantially higher cost.
When in a foreign currency loan keep a cash buffer in case of Margin Call during a period of adverse currency movement.
Watch the currency rates and consider switching between one currency and the other to lock in gains and protect from losses.

Australasian Taxation Services (ATS) has developed a unique tool on our information site at www.aussieproperty.com
called the Foreign Currency Loan Assessor. This calculates the true cost of finance including the interest and effect of any currency movement. There is also a more detailed analysis of the requirements in managing your Multi-Currency Loan. For anyone considering these loans, it is essential that you understand how they work, as the benefits and savings can be significant, but so can the downside risk. So do your research and seek professional advice in order to protect yourself from the unexpected.

Steve Douglas is the Co-Founder and Managing Director of Australasian Taxation Services (ATS). ATS provides specialist taxation services for anyone looking to invest in Australian property, including Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

Australasian Taxation Services
10 Jalan Besar
#17-01 Sim Lim Tower (S) 208787
Tel:    6293 3858   
Fax:    6293 4332   
Email:    tax@smats.net    
Web:    www.smats.net

Share this!

Posted by smats Mon, 02 Mar 2015 03:02:00 GMT


GEAR UP

Ever wondered what negative gearing is all about? Australian property tax and expatriate tax expert STEVE DOUGLAS explains how this financial investment strategy is used when acquiring a rental property and the benefits it can have on your overall financial performance.


In Australia, the practise of using negative gearing on a rental property has been an important part of the Aussie financial culture for years. Negative gearing is a form of leveraged investment where the costs of a loan – interest and other expenses – are greater than the yearly rental collection, resulting in a negative cash flow on the rental property. The core assumption, though, is that the property will grow in value on average by more than the annual holding cost, eventually resulting in an overall profit.

Negative gearing is very popular in Australia because financial loss on property is permitted as a deduction against your salary, which consequentially reduces your personal income tax. And not only is negative gearing a tax effective option, it can also bring about a number of other advantages:

AFFORDABILITY ENHANCEMENT
Very few people have the good fortune to actually pay cash for investment properties. Most have to earn and save for many years before investing in property. But bank-assisted loans can help, bringing you the advantage of acquiring a property at a fraction of the total cost. In Australia, banks are willing to lend for terms of up to 30 years and finance up to 80 percent of the purchase price of your property, regardless of your age, and consumer protection rules ensure low or no penalties for early repayment. This means you can hang on to more of your savings and stretch them on to a bigger and better property now rather than having to save for many years to come up with the entire purchase cost. And the ability to acquire more valuable, higher quality property now rather than later can also enhance your financial performance as more desirable property and locations tend to appreciate at a higher rate than the general market.

TAXATION EFFICIENCY
Australia is known for very high personal tax rates. In fact, for anyone living overseas and investing in Australian property, the starting tax rate is 32.5 percent ­– higher than many other countries. The Australian government realises this could discourage investment in Australia, so it implements tax incentives to encourage financial activity that is beneficial to the country. Property investment is one of those encouraged activities – it attracts overseas investors to ensure that a suitable amount of rental property exists for the fast-growing Australian population. And an allowance to claim construction costs against your tax over a 40-year period – a tax deduction available for resident and non-resident taxpayers alike – encourages new property investments. Residents in Australia can gain an annual tax benefit from their negative gearing property, while non-residents will carry the benefit forward each year to offset future Australian taxable income, including positive rental income in future years or capital gains on the eventual sale of the property. Because of the combination of lower taxation and less funds being contributed by you to fund the purchase of the property, the effect of using negative gearing at the maximum interest rate of 80 percent can improve your after-tax return by almost twice as much as if you had paid cash.

THE CATCH
All good things always seem to have a catch, and this is true for negative gearing. The catch is simple: the property must be able to safely grow by more than the annual holding cost. If you do not believe your property has the ability to outpace this cost then you should not purchase the property.

On average, a property in Australia purchased with an 80 percent loan will still create a net holding cost of one to two percent per year. This is the rent, less all costs, including interest. If your annual holding cost is two percent, your property must grow by more than this percentage for you to recover your additional annual investment. If not, you are actually losing money, not making money.

The good news is that the Australian property market is well known for consistent, long-term growth. In the past 15 years every Australian city averaged over seven percent annual growth, which would adequately cover holding costs and provide a sufficient surplus to reward the smart investor for a sound decision. The main driver in Australian property price growth is increasing demand from a rising population. Australia remains a preferred country of migration for around 200,000 people a year, and the housing supply more often than not cannot keep pace with demand. For this reason alone the market remains stable.

Negative gearing makes your investment decision more rewarding because of the legal and government-encouraged tax strategy it offers you. Not only does this method help contribute to the general economy but it benefits you as a property investor as well.
 

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

Australasian Taxation Services
10 Jalan Besar
#17-01 Sim Lim Tower (S) 208787
Tel: 6293 3858   
Fax: 6293 4332   
Email: tax@smats.net    
Web: www.smats.net

 

Share this!

Posted by smats Mon, 02 Mar 2015 01:30:00 GMT


AUSSIE LAND TAX

Ask Steve Douglas
Australian taxation advice

Are you liable for paying land tax on your Australian property? Australian property tax and expatriate tax expert STEVE DOUGLAS answers this question and discusses the circumstances under which one could qualify for land tax exemption in Australia.

In Australia the federal government is entitled to receive income tax and capital gains tax, which is managed when taxpayers lodge an annual income tax return. Under the Australian Constitution, state governments are not entitled to charge any tax against income or capital receipts; they are, however, allowed to raise levies or duties on activities within their state. One of the major levies for each state is land tax.

Land tax is similar to local council rates, which are based upon the unimproved value of the land and charged regardless of whether or not the property generates revenue (the surplus after costs). Many residents who live in Australia are usually exempt from land tax, as it is not charged on the family home in any of the states. Land tax is usually charged on vacant land, rental property or commercial property.

To qualify for the family home exemption, residents must have been actually living in the property on the date of determination (different for each state), which can be problematic if you are living overseas. However, some states allow tax exemption of the family home even if the family is based abroad, but this will usually require that the property not be rented out during the period the family is based overseas. If rent is collected, land tax is likely to be imposed. Fortunately, each state has a tax-free allowance – no land tax is collected if the unimproved value of the property is less than a certain threshold amount. The table below offers a guide of the current rates in place across Australia.

State

Land Tax Year End

Tax Free Allowance (2014)

NSW

Dec 31

A$412,000

 

Tax Rate (Above Threshold)

Starting from 1.6% and lifting to 2% for values over A$2,519,000

Victoria

Dec 31

A$250,000

Tax Rate (Above Threshold)

Starting from 0.2% and lifting to 2.25% for values over A$3,000,000

Queensland

Jun 30

A$599,000 for Australian resident individuals.

A$349,000 for companies, trusts and owners living out of Australia

Tax Rate (Above Threshold)

Starting from 1.7% and lifting to 2% for values over A$5,000,000

Western Australia

Jun 30

A$300,000

Tax Rate (Above Threshold)

Starting from 0.1% and lifting to 2.43% for values over A$11,000,000

South Australia

Jun 30

A$316,000

Tax Rate (Above Threshold)

Starting from 0.5% and lifting to 3.7% for values over A$1,052,000

Australian Capital Territory

 

Assessed quarterly on Jun 30, Sept 30, Dec 31 and Mar 31

No threshold

Tax Rate (Above Threshold)

Starting from 0.6% and lifting to 1.8% for values above A$275,000

Tasmania

Jun 30

A$24,999

Tax Rate (Above Threshold)

Starting from 0.55% and lifting to 1.5% for values above A$350,000

Northern Territory

 

No land tax charged

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The value used to assess land tax bears no resemblance to the actual property value; it’s merely a figure nominated by each government as to the value of just the land. Land tax is calculated on the cumulative value of all of the property owned by a person in the state where the property is located, so the more property you own in each state the higher the land tax rate. Another important issue to remember is that land tax on an apartment will be substantially less than that of a house, as the value of the unimproved land is shared over the many owners and creates a lower individual value for tax purposes. This can be helpful in determining what type of property you may wish to purchase.

Each state’s revenue department is usually quite active in seeking out non-payers and recouping any land tax arrears. You should be receiving an Annual Assessment from the state government where your property is located, seeking clarification on the use of the property and confirming the tax value. If you think you may have a potential land tax liability you will need to contact your property manager or the state revenue office as soon as possible to determine whether you are over the relevant threshold for your state. If they find you first, the penalties can be quite high, and state governments tend to be less willing to reduce penalties, even if you were unaware of your obligation.

 

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas.  Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

Australasian Taxation Services
10 Jalan Besar
#17-01 Sim Lim Tower (S) 208787
Tel:      6293 3858   
Fax:     6293 4332   
Email:  tax@smats.net    
Web:    www.smats.net

Share this!

Posted by smats Mon, 05 Jan 2015 06:15:00 GMT


MONEY TRANSFERS

Ask Steve Douglas
Australian taxation advice

Are you looking to send funds to family back home in Australia but worried about being taxed for it? Australian property tax and expatriate tax expert STEVE DOUGLAS offers his professional expertise on the matter to clear up any doubts you may have.



 

For both Australian expatriates and foreign nationals, the movement of capital between countries will attract no taxation consequence in Australia. This is true for transfers during expatriate assignments as well as remission of savings accumulated while living outside of Australia. The only time the Australian government will consider taxing foreign income of an Australian expatriate is when the expatriate is working abroad on a short-term assignment (usually less than two years), and thus still considered to be living in or connected to Australia. In this case, you are treated as a Tax Resident and taxed on any income you receive worldwide.

If you have moved overseas on a long-term basis, the Australian government will not tax you on any income from a non-Australian source, so you can send any amount of money home without any tax consequences whatsoever. Even if you send money back to family members, they will not have to pay tax as long as the money is not for services rendered. Simply gifting them or loaning them money is not a taxable activity. If you’re staying put in the Lion City this holiday season and looking to send money home, here are a few options to consider:

  • Traditional Banks:

You can use your current bank to convert your foreign currency and then transfer it to your Australian account. This is often very expensive as the banks apply a hefty margin against the prevailing exchange rate, usually about one to three percent of the amount being sent. It is relatively quick and easy, though, and you should definitely ask for a better margin if you are sending a large sum.
 

  • Foreign Exchange Booths:

You will find booths to accept your cash and swap it for your desired currency at every airport and scattered around popular tourist centres in Singapore. You will notice that these booths offer a very poor conversion, applying a margin of more than four to five percent to the prevailing rate. The margin, however, is somewhat justified due to the convenient retail locations of these booths.

  • Online FX Service:

In the modern financial world there are now many options to establish an FX account with online providers such as the SMATS FX, which can establish an account to verify your identity and then allow you to regularly transfer funds from one currency to another. The process is simple. You ask your bank to transfer the foreign currency to the FX service account. Your bank then converts the funds to Australian dollars and forwards them to your nominated account. By transferring funds this way, you can save a considerable sum as the margin applied can range between just 0.5 to 1.5 percent. The ability to apply a lower margin is due to the lower operating costs of an online service and the large volume of exchanges brought on by the very competitive pricing of the service.

Many mistake the need to declare cash taken to Australia with some sort of taxation consequence. The Cash Transactions Reporting rules require anyone leaving or entering Australia with more than the equivalent of A$10,000 in cash to declare it at the airport. This rule is in place as an anti-terrorism measure rather than to combat tax evasion. In fact, you can legally bring in much more cash than the declaration amount, as long as you can show a legitimate source for the money.

If the amount is electronically transferred to Australia rather than sent in cash, then there is no restriction on the amount sent, as anti-terrorism measures have already been taken by the sending bank or institution to verify your identity in accordance with international convention. In recent times, the Australian Taxation Office has been accessing the records of funds sent back to Australia and using them to question the authenticity of the sender’s residency. A letter is usually sent to the address on record, seeking verification that you are indeed living overseas on a permanent basis and are therefore not taxable for the funds being transferred.

If you do receive one of these letters, it is essential you respond appropriately and confirm your tax status. It is strongly recommended you seek professional assistance for this. It could be especially complicated if you are sending funds home regularly for your spouse or children who may have returned to Australia before you. And if you complete your offshore period and return to Australia, you are legally entitled to leave funds abroad and transfer them gradually at your discretion.

You will be required, however, to report any interest or earnings on your offshore capital each year if you are living in Australia as a resident for tax purposes. This would apply to you, regardless of whether you brought the income into Australia or left it overseas.


Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas.  Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

Australasian Taxation Services
10 Jalan Besar
#17-01 Sim Lim Tower (S) 208787
Tel:    6293 3858   
Fax:    6293 4332   
Email:    tax@smats.net    
Web:    www.smats.net

Share this!

Posted by smats Tue, 25 Nov 2014 06:29:00 GMT


SUPER SAVINGS

Ask Steve Douglas

Australian taxation advice

As an expatriate with no Australian superannuation support, you may be worried about not having any retirement benefits to fall back on when you return home. Fear not. Australian property tax and expatriate tax expert STEVE DOUGLAS suggests an alternative option to help you prepare for your golden years.

When many Australians move overseas to work, they often take up positions that do not have the superannuation (or pension) support they might have while living and working in Australia, where every salaried employee is covered by a mandatory nine-percent employer contribution into superannuation, which accrues for their eventual retirement.
Simply put, superannuation is government-regulated savings, a controlled form of financial accrual where various rules are enforced to ensure you cannot simply spend your money and then rely on government support in your retirement. Living overseas and not participating in the forced superannuation savings can translate into a greater savings potential for you if you are disciplined and are actually putting aside your money on your own. Whether you should place your savings into a formal superannuation investment or keep it in your personal account will depend on a variety of issues:

Whether you place your savings into Australian superannuation or otherwise will greatly depend on the tax implications of the country you are working in. In most expatriate jurisdictions, there may be no tax advantage by contributing to superannuation, especially an Australian fund, and many forms of investment may bear no taxation on earnings or growth. When you place your savings into an Australian fund, the earnings on that investment will be subject to Australian superannuation taxation rates of 15 percent or 10 percent. If, on the other hand, you have invested your money in your own personal account, it is tax-free for you in any country, so you are doing yourself a disservice by investing through superannuation rather than placing your savings in your own name.

Flexibility and access
Once funds are placed into an Australian superannuation fund, it’s very difficult to gain access to them prior to retirement. Indeed, it is unlikely you will be able to retrieve your money for many years. This may be less of a concern if you are closer to retirement age of 60.

Importance of a debt-free residence on return
Without doubt, the biggest financial burden for anyone living in Australia is making rental payments or mortgage repayments on their family home. One great tragedy for many Australians is living with the burden of private home debt and not being able to use cash built up in their superannuation to relieve themselves of this financial pressure each month. As an expat with funds in your own name, when you return to Australia, you can enjoy financial freedom and use your funds to reduce this debt rather than have your cash locked up in a savings pot.

Overseas pensions and savings plans
When replacing your Australian superannuation with an overseas savings or a pension plan, do practice caution. Other plans do not carry the same tax advantages as those in Australia and often come with very high expenses as they are not protected by the same regulation as funds are in Australia. It is especially important not to sign up for any savings plan with a term of your contribution greater than the time you intend to be overseas. 

Potential for rule changes
The government can change the rules affecting superannuation at any time, so your plan could be forced to change against your will. By keeping your savings out of the superannuation system, you can make the choices that are best for you, regardless of any changes that are out of your control.

Danger of a Self-Managed Superannuation Fund (SMSF)
If you are operating a SMSF and you move overseas, there are significant traps to be wary of. While living in Australia and before departing, you cannot contribute to this fund at all, as it may trigger your fund to become non-compliant and subject to severe penalties. In addition, within two years of leaving Australia, you must switch the ongoing management to an Australian-based person or also risk becoming non-compliant. It is essential you seek professional advice to confirm your situation if you had a SMSF when you left Australia. Failure to clarify and set everything in place could put you in a risk of 45 percent of your fund value being taken as a fine for becoming non-compliant.

Topping up your superannuation fund
The best time to put funds into your superannuation fund as an expatriate is when you actually return to live permanently in Australia. At that time, you can evaluate your personal circumstances and make a voluntary, tax-free contribution of up to A$450,000 per person (subject to prevailing rules) and then enjoy the various tax advantages on offer, including tax-free pensions from your fund. As a general rule, the funds you should place into superannuation should be what is left over from your savings after you have:

  • Paid out the mortgage on your purchased, long-term residence in your home country.
  • Acquired personal essentials such as a car and furniture.
  • Set aside a cash pot to cover life’s emergencies, including your children’s education and holiday funds.

By following the suggestions above, you will have covered all the personal costs and lowered your cash cost of living while having a comfortable life.

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas.  Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

Australasian Taxation Services
10 Jalan Besar
#17-01 Sim Lim Tower (S) 208787
Tel:    6293 3858   
Fax:    6293 4332   
Email:   tax@smats.net    
Web:    www.smats.net

 

Share this!

Posted by smats Tue, 30 Sep 2014 04:57:00 GMT


TAX RETURNS

Have you recently moved to Singapore from Australia and neglected to address your taxation responsibilities while living abroad? Australian property tax and expatriate tax expert STEVE DOUGLAS breaks down the circumstances that require you to lodge an Australian tax return annually.

Q: My family and I relocated to Singapore about six months ago. Do we still need to lodge an Australian tax return even though we’re based here now?

A: If you’ve earned a taxable Australian income within the Australian financial year, which runs from July 1 to June 30, you will definitely need to lodge a tax return. Failure to do so will result in a fine of up to A$850 per person for each year, so it’s very important to check your income history. When you live overseas as an expatriate or if you are a non-Australian citizen investing in Australia, you will be classified as a ‘non-resident’ for Australian tax purposes. If you fall under this category, taxable purposes and items are much less for you when living out of Australia, as compared to Aussie-based citizens whose assessment relates solely to an Australian-sourced income including wages or director’s fees for work performed in Australia, profits from any Australian-based business activity or rent you may have received on an Australian property. Let’s take a closer look at these three scenarios,

If you have a rental property in Australia, you are required to lodge a tax return, even if the expenses on your property are greater than the rent. This is to your own advantage, as you will benefit financially in the future when your tax return report is carried forward. The Australian Taxation Office has recently been allocated millions of dollars for tracking property owners who rent out their property but fail to declare it on their tax return. So it’s best not to take any risks and delay lodging your tax return; the authorities will be able to identify and chase you up with potential fines if you do so.

If you are sure you are going to be living abroad for an indefinite period (over two years, according to the Australian Taxation Office), you will not need to declare any non-Australian-sourced income from the date you left Australia to take up your overseas posting. However, if you are just on temporary assignment, the Australian Government will tax your overseas earnings.

It’s important to note that after your first year of staying abroad, you will be entitled to a tax refund on the tax you paid for the few months of salary earned in Australia just before relocation. Do not let this boon slip away; ensure you complete your tax return early. You are required to lodge your tax return by October 31 if you decide to file it yourself. However, if you need additional time, seek Australasian Taxation Services, who can arrange for an extension of time to file your return.

While completing your tax returns, consider some capital gains tax issues on any shares you may have had when you left Australia. Under Australian tax law, you are deemed to have sold all your Australian non-property assets at market value on the date of departure, even if you haven’t actually sold those assets. If there is any capital gain, then you may be entitled to a 50 percent tax discount if the assets had been owned longer than 12 months. It is possible, however, to defer this capital gains tax by making a written election in your tax return, requesting officials to delay taxation until the sale of the shares sometime in the future.

Lastly, make sure you inform your banks in Australia of your status as an expatriate living abroad. As a non-resident, your earned interest is no longer subject to income tax. It does, however, attract a 10 percent Non-Resident Withholding Tax, which the banks will deduct at the time interest is credited into your account. Once the 10 percent is paid, no further tax is applicable on this interest in Australia. 

BOOK YOUR
PLACE NOW!

An ATS Promotion
Learn more about what to expect in Australian property trends at the SMATS 9th Annual Market Update, September 30 2014 at the Pan Pacific Singapore. Register at www.smats.net or call 6293 4148 for more information.

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas.  Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

Australasian Taxation Services
10 Jalan Besar
#17-01 Sim Lim Tower (S) 208787
Tel: 6293 3858   
Fax: 6293 4332   
Email: tax@smats.net    
Web: www.smats.net
 

Share this!

Posted by smats Fri, 29 Aug 2014 03:54:00 GMT


MONEY TRANSFERS

Are you looking to send funds to family back home in Australia but worried about being taxed for it? Australian property tax and expatriate tax expert STEVE DOUGLAS offers his professional expertise on the matter to clear up any doubts you may have.

For both Australian expatriates and foreign nationals, the movement of capital between countries will attract no taxation consequence in Australia. This is true for transfers during expatriate assignments as well as remission of savings accumulated while living outside of Australia. The only time the Australian government will consider taxing foreign income of an Australian expatriate is when the expatriate is working abroad on a short-term assignment (usually less than two years), and thus still considered to be living in or connected to Australia. In this case, you are treated as a Tax Resident and taxed on any income you receive worldwide.

If you have moved overseas on a long-term basis, the Australian government will not tax you on any income from a non-Australian source, so you can send any amount of money home without any tax consequences whatsoever. Even if you send money back to family members, they will not have to pay tax as long as the money is not for services rendered. Simply gifting them or loaning them money is not a taxable activity. If you’re looking to send money home to your loved ones, then here are a few options you can consider:
 

TRADITIONAL BANKS You can use your current bank to convert your foreign currency and then transfer it to your Australian account. This is often very expensive as the banks apply a hefty margin against the prevailing exchange rate, usually about one to three percent of the amount being sent. It is relatively quick and easy, though, and you should definitely ask for a better margin if you are sending a large sum.

FOREIGN EXCHANGE BOOTHS You will find booths to accept your cash and swap it for your desired currency at every airport and scattered around popular tourist centres in Singapore. You will notice that these booths offer a very poor conversion, applying a margin of more than four to five percent to the prevailing rate. The margin, however, is somewhat justified due to the convenient retail locations of these booths.

ONLINE FX SERVICE In the modern financial world there are now many options to establish an FX account with online providers such as the SMATS FX, which can establish an account to verify your identity and then allow you to regularly transfer funds from one currency to another. The process is simple. You ask your bank to transfer the foreign currency to the FX service account. Your bank then converts the funds to Australian dollars and forwards them to your nominated account. By transferring funds this way, you can save a considerable sum as the margin applied can range between just 0.5 to 1.5 percent. The ability to apply a lower margin is due to the lower operating costs of an online service and the large volume of exchanges brought on by the very competitive pricing of the service.

Many mistake the need to declare cash taken to Australia with some sort of taxation consequence. The Cash Transactions Reporting rules require anyone leaving or entering Australia with more than the equivalent of A$10,000 in cash to declare it at the airport. This rule is in place as an anti-terrorism measure rather than to combat tax evasion. In fact, you can legally bring in much more cash than the declaration amount, as long as you can show a legitimate source for the money.

If the amount is electronically transferred to Australia rather than sent in cash, then there is no restriction on the amount sent, as anti-terrorism measures have already been taken by the sending bank or institution to verify your identity in accordance with international convention. In recent times, the Australian Taxation Office has been accessing the records of funds sent back to Australia and using them to question the authenticity of the sender’s residency. A letter is usually sent to the address on record, seeking verification that you are indeed living overseas on a permanent basis and are therefore not taxable for the funds transferred.

If you do receive one of these letters, it is essential you respond appropriately and confirm your tax status. It is strongly recommended you seek professional assistance for this. It could be especially complicated if you are sending funds home regularly for your spouse or children who may have returned to Australia before you. And if you complete your offshore period and return to Australia, you are legally entitled to leave funds abroad and transfer them gradually at your discretion. You will be required, however, to report any interest or earnings on your offshore capital each year if you are living in Australia as a resident for tax purposes. This would apply to you, regardless of whether you brought the income into Australia or left it overseas.

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas.  Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

Australasian Taxation Services
10 Jalan Besar
#17-01 Sim Lim Tower (S) 208787
Tel:    6293 3858   
Fax:    6293 4332   
Email:    tax@smats.net    
Web:     www.smats.net
 

Share this!

Posted by smats Thu, 24 Jul 2014 09:34:00 GMT


Kids Abroad

Australian property tax and expatriate tax expert STEVE DOUGLAS discusses the pros and cons of renting versus purchasing a property to house your children while studying overseas.

For many of you with children, there will inevitably be a day when you’ll face the decision as to where you would like your children to undertake their tertiary education and whether you will be back in Australia to provide a home for them during their educational pursuits. When it comes to housing matters, the simple solution is to rent an apartment, room or university dormitory for them. Although this option is an easy one, the cost soon mounts and, at the end of the study period, becomes a substantial non-recoverable burden. Here are a few key factors to consider when renting:

The alternative to renting is to buy a property that is suitable for your child, then sell it at the end of the study period or keep it as an ongoing investment. This move can serve as an opportunity for you to recover some or all of the costs of occupation and of your child’s study from the potential capital gains on the property over the years it was held. This has been a successful strategy for many and should be considered an advantageous option.

USEFUL TIPS

tart early Even if your children are very young, the advantage of buying a property sooner than later is significant. You will have the advantage of today’s price, which tends to be lower than the potential price in the years ahead when the property is needed.
Selection is very important As with all property investment decisions, it is essential to purchase the right property. You should be careful to avoid ‘specialised student accommodation’ as it can be very small and extremely difficult to re-sell later, even though the rent returns are very attractive.
 

Buying a property in Australia is always a big decision. When it can provide the advantage of housing your children through their academic life, however, the rewards can be very attractive and, in most cases, make the decision to buy a more astute option than the alternative of renting accommodation.

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

 

INFORMATION Australasian Taxation Services Pty Ltd 10 Jalan Besar #17-01 Sim Lim Tower Singapore  208787 Tel:    6293 3858     Fax:    6293 4332     Email:    tax@smats.net     Web:    www.smats.net

Share this!

Posted by smats Mon, 21 Jul 2014 06:41:00 GMT


2014 Aussie Budget

Australian property tax and expatriate tax expert STEVE DOUGLAS shares his knowledge about the recently announced Australian Federal Budget and its implications on property investment for Australian expats and foreign investors.

Australian Treasurer Joe Hockey presented his first Federal Budget to Parliament on May 13, 2014. This Budget has been poorly received in Australia as it comes as the “tough medicine” that Liberals need to resolve the current budget crisis, which has seen Australia’s national debt spiral from nil in 2007 to over A$300 billion now. The Labour Government made several funding announcements in the last six budgets that have yet to be implemented, leaving the current Government with many tough choices to make. Previous spending decisions saw Australia lead the world in Government spending increases that were based on overly optimistic revenue forecasts, most of which have proven incorrect. 

For the record, Australia’s past peak debt was approximately A$96bn in 2002. Under the leadership of then Liberal Prime Minister John Howard and his Treasurer Peter Costello, this was paid off entirely in 2007. It seemed impossible in 2002 to consider that this debt could ever be paid off, but somehow this was achieved and it was a proud moment for Australia. Being debt-free gives any country a real chance to plan its future and not be beholden to financial interests or global uncertainty. This was clearly evident in the fact that Australia, more than any other country, survived the Global Financial Crisis of 2007-08 relatively unscathed. 

Given how the debt has now increased so rapidly in such a short period of time, the new Liberal Government feels there is a crisis and wants to remedy the situation. As a result, they have made a series of decisions and cutbacks on spending promises of the last Government, all of which are proving to be unpopular in the country. Given the public backlash, many of the announcements in this Budget will struggle to pass the required legislation through the Senate. Careful negotiation and compromise may be required to achieve their desired outcomes. Some of the key announcements in the budget include:

  • Introduction of a Budget Repair Levy of two percent of any taxable income above A$180,000pa for the next three years only.
  • Removal of the Mining Tax and Carbon Tax.
  • Medicare Co-Contribution payment which will initially go to fund the creation of an A$20bn Medical Research Fund.
  • Re-introduction of the indexation increase on Fuel Excises, with new funds dedicated to road infrastructure.
  • Deregulation of University Fee Structures and increases to University Loan interest rates to reflect the cost of Government borrowing.
  • Freezing of increases and thresholds for many Government Welfare payments that usually increase with inflation.
  • Removal of almost A$80bn of forward funding promises to the State Governments for Health and Education initiatives of the previous Labour Government.
  • “Work for the Dole” rules for recipients of unemployment benefits requiring them to either undertake training, education or controlled work duties together with more stringent qualification rules.

These are but a few of the announcements and perhaps the more contentious ones at that. Australia now faces a great test in how it reacts to this budget. Do we want to continue an “Era of Entitlement” or create a stable platform that safeguards the country’s financial future and allows it the ability to afford to support those in need from a strong financial footing? Now is not the time to complain, that should have been done when the massive budget deficits were being recorded and the debt jumped ever higher. Now is the time to let the new Government take action and let them move forward with conviction

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

 

Share this!

Posted by smats Fri, 27 Jun 2014 03:58:00 GMT


Super savings

As an expatriate with no Australian superannuation support, you may be worried about not having any retirement benefits to fall back on when you return home. Fear not. Australian property tax and expatriate tax expert STEVE DOUGLAS suggests an alternative option to help you prepare for your golden years.

 

When many Australians move overseas to work, they often take up positions that do not have the superannuation (or pension) support they might have while living and working in Australia, where every salaried employee is covered by a mandatory nine-percent employer contribution into superannuation, which accrues for their eventual retirement.

 

 

Simply put, superannuation is government-regulated savings, a controlled form of financial accrual where various rules are enforced to ensure you cannot simply spend your money and then rely on government support in your retirement. Living overseas and not participating in the forced superannuation savings can translate into a greater savings potential for you if you are disciplined and are actually putting aside your money on your own. Whether you should place your savings into a formal superannuation investment or keep it in your personal account will depend on a variety of issues

 

Flexibility and access

Once funds are placed into an Australian superannuation fund, it’s very difficult to gain access to them prior to retirement. Indeed, it is unlikely you will be able to retrieve your money for many years. This may be less of a concern if you are closer to retirement age of 60.

 

Importance of a debt-free residence on return

Without doubt, the biggest financial burden for anyone living in Australia is making rental payments or mortgage repayments on their family home. One great tragedy for many Australians is living with the burden of private home debt and not being able to use cash built up in their superannuation to relieve themselves of this financial pressure each month. As an expat with funds in your own name, when you return to Australia, you can enjoy financial freedom and use your funds to reduce this debt rather than have your cash locked up in a savings pot.

 

Overseas pensions and savings plans

When replacing your Australian superannuation with an overseas savings or a pension plan, do practice caution. Other plans do not carry the same tax advantages as those in Australia and often come with very high expenses as they are not protected by the same regulation as funds are in Australia. It is especially important not to sign up for any savings plan with a term of your contribution greater than the time you intend to be overseas. 

 

Potential for rule changes

The Government can change the rules affecting superannuation at any time, so your plan could be forced to change against your will.  By keeping your savings out of the superannuation system, you can make the choices that are best for you, regardless of any changes that are out of your control.

 

Danger of a Self-Managed Superannuation Fund (SMSF)

If you are operating a SMSF’s and you move overseas, there are significant traps to be wary of. While living in Australia and before departing, you cannot contribute to this fund at all, as it may trigger your fund to become non-compliant and subject to severe penalties. In addition, within two years of leaving Australia, you must switch the ongoing management to an Australian-based person or also risk becoming non-compliant. It is essential you seek professional advice to confirm your situation if you had a SMSF when you left Australia.  Failure to clarify and set everything in place could risk 45 percent of your fund value being taken as a fine for becoming non-compliant.

 

 

The best time to put funds into your superannuation fund as an expatriate is when you actually return to live permanently in Australia. At that time, you can evaluate your personal circumstances and make a voluntary, tax-free contribution of up to A$450,000 per person (subject to prevailing rules) and then enjoy the various tax advantages on offer, including tax-free pensions from your fund. As a general rule, the funds you should place into superannuation should be what is left over from your savings after you have:

 

 

Paid out the mortgage on your purchased, long-term residence. Acquired personal essentials such as a car and furniture. Set aside a cash pot to cover life’s emergencies, including your children’s education and holiday funds. This way you will have covered all the personal costs and lowered your cash cost of living while having a comfortable life. 

 

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas.  Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

 

 

 

Share this!

Posted by smats Thu, 26 Jun 2014 23:54:00 GMT

Older posts: 1 2 3 ... 7


Australian Tax & Property Advice

With Steve Douglas, specialising in taxation & migration planning

Smats

Profile

Steve Douglas is the co-founder and Managing Director of Australasian Taxation Services (ATS), established in Singapore in 1995. ATS provides specialist taxation services to people of any nationality investing in Australian property, as well as Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.

Contact Info

Australasian Taxation
Services Pty Ltd

10 Jalan Besar
#17-01 Sim Lim Tower

Singapore 208787

 


Tel: 6293 3858 

Fax: 6293 4332

Web: www.smats.net 

Email: tax@smats.net