How The 2019 Australian Election Results Affect Australian Expats

How The 2019 Australian Election Results Affect Australian Expats

How The 2019 Australian Election Results Affect Australian Expats

 

For many voters, the election results were surprising. Many media outlets and political analysts had been predicting a Labor party win for the past year and have dubbed the Coalition’s win a “miracle”.

You may be thinking how does the election results affect Australian expats?

Ultimately it means a retention of the status quo. Below is a quick comparison of the Labor and Coalition policies as they relate to the different financial considerations that an Australian expat may have.

 

Non-Concessional Contributions (NCC) Cap

Current and retained law

  • You can make after tax contributions of up to $100,000 each year (required to have a total superannuation balance of less than $1.6 million)
  • If you are under age 65 you can access the bring forward rule and make NCC’s of up to $300,000 over a fixed three year period (provided your super balance is no more than $1.4 million)

Labor policy

  • The NCC cap would have been reduced to $75,000 per year.
  • Bring forward rule would be reduced to a one off contribution of $225,000.

Atlas Summary

A lower Non-Concessional Contribution cap would have reduced the ability for Australian expats to build their retirement wealth in their home country, through lump sum investment.

 

Concessional Contributions (NCC) Cap

Current and retained law

  • The current concessional contributions cap for the 2018/19 financial year is $25,000. This cap is indexed each year but will only increase in $2,500 amounts. This means that the cap will not increase in the 2019/20 year.
  • From 2019/20 onwards you will be able to make a catch up concessional contribution to super to use up any amount you had left in the concessional cap from the previous year. You can carry forward your catch up amount for a period of 5 years and claim a personal tax deduction for the catch up as long as your total super balance is below $500,000.

Labor policy

  • Labor did not announce any changes to the concessional cap of $25,000.
  • Under a Labor government the catch up contribution policy was to be abolished.

Atlas Summary

These changes would have affected the ability for expats to minimize their Australian taxes on any assessable income they receive in Australia. The proposed changes would have limited the effect of some tax minimization strategies.

 

Tax deductions for personal superannuation contributions

Current and retained law

  • Currently, you can claim a tax deduction for personal superannuation contributions provided you complete a “Notice of intent to claim a deduction” form and send it to your superannuation fund. You are currently able to claim a tax deduction each year up to the concessional contribution limits. E.g. if you receive no super guarantee contributions, you can make a $25,000 tax deductible super contribution in a financial year.

Labor policy

  • Labor had intentions of changing the rules back to the old 10% rule. The 10% rule stated that an individual could make a tax deductible super contribution provided no more than 10% of their assessable income was derived from Australian employment.

Atlas Summary

Ultimately, these changes would have impacted Australian expats due to the fact that overseas employment income was not included in the 10% test.

 

Limited Recourse Borrowing Arrangement (LRBA)

Current and retained law

  • If the relevant rules are abided by, a SMSF is able to borrow to invest. This is commonly used to purchase an investment property within a SMSF using a mortgage.

Labor policy

  • Under a Labor government, you would no longer be able to implement a LRBA.  All those currently in place would be grandfathered.

Atlas Summary

SMSF’s are a pain point for Australian expats due to individuals being unable to meet the Central Management and Control test. This policy would likely not affect many Australian expats as SMSF’s continue to be an ineffective investment vehicle for their Australian superannuation.

 

Capital Gains Tax Discount

Current and retained law

  • Currently, a discount of 50% applies to any capital gains made on CGT assets held by an individual for at least 12 months. Additionally, a 1/3rd discount applies to capital gains made on CGT assets held by a super fund for at least 12 months.

Labor policy

  • Labor proposed policy that would have reduced the CGT discount from 50% down to 25% for any assets acquired from 1 Jan 2020. The 1/3rd super discount would remain the same.

Atlas Summary

This change would have been a negative outcome for any long term investor in Australia.

 

Taxation of Discretionary Trusts (Family Trusts)

Current and retained law

  • The distributions from discretionary trusts are currently taxed depending on the personal tax rate of the beneficiary receiving the distribution.

Labor policy

  • Labor intended on levying a minimum tax rate of 30% on all discretionary trust distributions.

Atlas Summary

These changes would have severely reduced the effectiveness of many tax planning strategies available to expats who move back to Australia and are looking to minimize their personal tax obligations.

 

Franking credit changes

Current and retained law

  • The Coalition had announced no changes to franking credits. Those on 0% tax rates will continue to be eligible for cash refunds for any imputation (franking) credits.

Labor policy

  • Labor had pledged to ban the cash refund of franking credits available for Australian investors who are on a 0% marginal tax rate. These changes were set to affect many self-funded retirees who utilized Australian shares as their main investments within their SMSF.

Atlas Summary

These changes would have had little effect on Australian expats while they were overseas. Non-residents are not entitled to any franking credit offset, cannot use any franking credit attached to franked dividends to reduce the amount of tax payable on other Australian income and cannot get a cash refund of the franking credit.

However, it could have affected those who repatriated back to Australia to retire as their access to cash refunds of franking tax credits in retirement (while in a 0% tax bracket) would have been removed.

 

Negative Gearing

Current and retained law

  • The coalition has not announced any changes to negative gearing in its current form. Individuals will still be able to purchase an investment property of any age and access negative gearing provisions relating to tax.

Labor policy

  • Labor had planned to limit negative gearing provisions to only apply to new housing purchased after 1 January 2020. Existing arrangements would have been grandfathered based on the existing legislation.

Atlas Summary

While expats cannot take full advantage of negative gearing due to not earning an Australian assessable income, they can still take advantage of tax losses for use in future years. The proposed changes would have removed the ability for expats to accrue losses from future investment properties to be used to offset any future wage income when they return to Australia (unless the property purchased was new).

 

In Summary

With the Coalition retaining leadership within the Australian government, it means business as usual. Australian expats can enjoy the fact that there will likely be no sweeping superannuation or investment changes in the next 3 years.

Atlas Wealth Management will continue to monitor Australian regulatory changes and keep expats informed as information becomes available.

 

Brett Evans is the Managing Director and a Financial Planner with Atlas Wealth Management which is the first financial services firm in Australia to specialise in providing financial advice to Australian expatriates. With over 20 years of experience in the finance and investments industry, Brett has worked for blue chip companies which include the Australian Stock Exchange (ASX), HSBC, Suncorp and Citi Smith Barney.

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