How Moving Overseas May Cost Thousands Without Financial Advice
How Moving Overseas May Cost Thousands Without Financial Advice – according to the Australian Bureau of Statistics an Australian resident moves overseas to live every 1 minute and 51 seconds.
That’s 778 new Australian expats every day, 5,448 every week and 283,329 every year. Unfortunately the vast majority of those Australians do not do their research on how a relocation may affect them financially.
They will spend hours looking at accommodation or where the kids will go to school but little to no attention is paid to the financial ramifications of moving overseas which very possibly maybe the deciding factor as to whether a relocation will be successful, both personally and financially, or not.
Twenty or thirty years ago Australians had a the luxury of being able to jump on a plane with no thought of how interconnected their life in Australia would be with their new country of domicile. However in today’s digital age big brother (in this case Canberra) is watching.
Every day we meet people who have not done their homework (which is why they came to us) who would not have been in the mess they were in if the organised review of their finances before their departure. Its cases like these that led us to setting up the Pre Departure Review service which is a cost-effective way for future expats to see how a relocation may affect their finances.
Its a service that we provide as a half way step for those moving overseas haven’t taken the leap to seek personalised financial advice but want to be aware of the how the move may affect them.
In this blog post we will run through a couple of scenarios of how not receiving the proper financial advice before moving overseas may cost thousands and in some cases tens and hundreds of thousands.
Most people have got it (whether they like it or not) however your planned move overseas should take into account what maybe in the future your largest nest egg. With the rising popularity of Self Managed Super Funds (SMSF’s) more and more Australians are choosing to take on more of the responsibility of managing their own superannuation.
Did you know that if you were to move overseas that your SMSF could be in break of the Superannuation Industry (Supervision) Act otherwise known as the SIS Act? The reason being that to maintain a compliant SMSF, Central Management & Control (CM&C) must be ordinarily maintained in Australia.
This generally doesn’t mean that you can leave your financial planner or accountant to manage the account as this only includes the investment selection and administration. If you’re already overseas then that is bad news.
A breach by your SMSF can have a devastating effect on your account balance. If a SMSF is deemed non-compliant by the ATO then not only will there be tax payable at a rate of 47% on the income that the fund receives whilst non compliant but that 47% tax will also be charged on the market value of the fund’s total assets in the first year. That means that you could lose almost half of your superannuation balance in one hit.
Most superannuation funds will have some sort of insurance (Life, Total & Permanent Disability (TPD) cover inside of them. The premiums to provide this cover to you are deducted from the balance of your superannuation account every month.
But what if we told you that not all insurance providers cover you if you move overseas? Yes, they will still deduct the premium but you’re essentially paying for a product that you cannot claim on whilst overseas. It’s money down the drain.
According to Canstar a 35 year old male on average can expect to pay $261 per annum for death cover and $217 per annum for Total & Permanent Disability (TPD) Cover. That’s $478 per year. If we assume that he’s overseas for 5 years then he could be paying up to $2,390 for something he could never use.
Australians have always had a love affair with property but how does that change if you were to move overseas? A great example of how a move overseas can affect your property is being hotly debated as we speak. In the 2017 federal budget the government proposed the removal of the Main Residence Exemption (MRE) for those people who have owned a property in Australia that was deemed a Principal Place of Residence (PPoR) and were to sell it whilst overseas.
The legislation is still before the Senate but if it were to go through then what this would mean is that if you were to sell your former home whilst overseas then you would pay Capital Gains Tax all the way back to the day that you bought it.
Lets take the example of someone who was fortunate to buy a property in Bondi in the year 2000 for $750,000. They lived in the property until the year 2020 and then moved overseas. At the time of the relocation the property was worth $2,000,000.
Whilst they were overseas for whatever reason (the property was too small, becoming too hard to manage or a myriad of other reasons) they decided to sell the property. Under the proposed legislation that person would have to pay Capital Gains Tax for the full value of the appreciation in the property’s value. Not just from the time that they moved overseas but all the way back to 2000. Ouch!!
So as you can see when you are looking to relocate, moving overseas may cost thousands and sometimes into the tens and hundreds of thousands if you’re not aware of the financial ramifications. Obtaining financial advice before you move has transitioned from a recommended practice to a necessity unless you like throwing money away.