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Expat plan

Discussion in 'Investing Strategies' started by broadscott, 3rd May, 2012.

  1. broadscott

    broadscott Active Member

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    I will be heading off on an expat assignment in the next 8 months and I was wondering if there were any investment strategies that I might take advantage of for this situation. We don't own a house and have lots of cash lying around. I read that if you own shares you don't get taxed on any gains on them while you are OS. Are there any other such opportunities?
     
  2. M.Investigator

    M.Investigator Positive Cashflow Investo

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    broadscott,
    That seems exciting to go overseas for an assignment for work.

    Where are you headed? That might give some clues about potential investment opportunities that are particular to your area.

    For example, if you were going to the USA, you coudl take a look at USA property as a number of Aussies have been investing there recently due to the power of the Aussie dollar and the bargain properties available there, as well as the high yields and positive cashflow.
     
  3. Terryw

    Terryw Well-Known Member

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  4. broadscott

    broadscott Active Member

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    It will be the US. Work pays rent for expats so I have thought about buying a place over there and saving the rent money. Properties are much cheaper there and I could consider the rental allowance as a reasonable return on our money. I am not sure you would make a capital gain on the property, but if the AUD heads south you could make money that way. Otherwise it would be piling money into the stock market, paying the CGT before we left and then relying on the fact that all subsequent capital growth while we are OS is tax free.

    I would declare non-residency for tax purposes.
     
  5. broadscott

    broadscott Active Member

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    If you lived in the US as a non-Australian resident, bought a house, moved back to Australia after 5 years and sold the US house when you were back in Aus as a resident, would Australian tax be payable on any capital gains (and how would the ATO calculate the CG)?
     
  6. Terryw

    Terryw Well-Known Member

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    I think CGT would apply and it would be calculated by the normal principles as you would be a resident at the time of sale.
     
  7. broadscott

    broadscott Active Member

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    Does this mean that if it was you principal place of residence it would be CGT free?
     
  8. Terryw

    Terryw Well-Known Member

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    Possibly if you meet all the requirements.
     
  9. broadscott

    broadscott Active Member

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    My concern would be that the ATO would consider the sale of the house a capital gain event and tax the entire value of the sale.
     
  10. GunnerGuy

    GunnerGuy Index & Property Investor

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    Having worked out of Australia for over 10 years as an expat this is my current understanding.

    You cannot avoid tax in Australia if you generate any income or capital gain from within Australia - rental, fixed income, interest on accounts, selling shares or property.

    The tax rate depends on your residential status.

    If you are out of Australia for more that 9 months in the financial year you will be taxed as a non resident. Taxation starts on the first dollar at 30%. The next tax band I believe comes in at about $30,000.

    If you are in Australia for more that 3 months then your tax status does not change in any way shape or form, and you have the standard tax bands/thresholds as if you were permanently in Austratlia. ie. tax only starts at $18,000 (I think it is now)

    eg. If you go away for 8 months within the financial years rental income, dividends, fixed income returns, bank account interest will be taxed in the standard tax bands. So no change if you are only out for 8 months. If you are out longer the tax rates are the same but they come in quicker, eg. The first dollar of income/gain in Australia is taxed at 30%.

    In short, from experience, and the recent non resident tax changes, tax is lower if you remain in Australia than if you are a non resident and away for most of the year ..... that is on the income gained in Australia. As a resident you have to declare global income remember.

    If your expat package is a good one be careful as if you are in Australia for more that 3 months of the financial year then all that high wage you earn abroad (and the reant your company pay for you - fringe benefit) will still have to be declared as income and taxed at the high rates in Australia.

    In short - get paid abroad, stay out for more that 9 months. Any gains in Australia are still taked even though you are away ..... and at a quicker/higher rate.

    Gunnerguy
     
  11. Terryw

    Terryw Well-Known Member

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    This isn't necessarily true because there are a few different ways to determine residency for tax purposes including

    (i) the domicile test;
    (ii) the 183 day test; and
    (iii) the superannuation fund test.



    See the above case I linked to too.
    In that case the tax payer was overseas for much longer than 183 days but was still assessed as being an Australian resident for tax purposes.
     
  12. broadscott

    broadscott Active Member

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    I was off by 3 months. OS assignment confirmed for 2Q this year, so now is the time to get my ducks in a row!

    My plan hasn't changed significantly from before. We plan on buying a place in the USA (borrowing as much as we can at low interest rates for the purchase). Then my wife (who doesn't work) plans on investing in Aus stock market in mostly high growth stocks.

    My research indicates that our US house would be considered our PPOR by ATO so CGT will not be payable in Aus (will be in USA though). We do not have any IP and as I understand it new changes to tax law would mean any CG on an IP would be applied to 100% of CG, not 50%. This makes the stock market much more attractive to me given 100% of CG are tax free and any fully franked dividend is also not taxed (but you waive the franking credit, which in my wife's case is a loss). I am also interested in buying US shares, would it be better to buy them from the US or Aus (or no difference)?

    Does anyone have any other tips or suggestions they would like to offer? I'd really like to have a good solid plan in place before we head off and life gets crazy.