For non-tax residents of Australia, the landscape continues to change. In the second of this two-part article, we cover some of the changes in superannuation and treatment of Australian property that affect expatriates who have swapped the sunburnt country for the little red dot that is Singapore.
Being based in Singapore as an expatriate is a fantastic opportunity to grow personally, professionally, and possibly financially. But it’s not without its challenges. The 2017 Australian Budget saw a raft of changes, notably affecting the ability to maximise long-term tax efficiencies of superannuation, as well as some significant changes to non-residents owning Australian property.
Transfer Balance Cap
The Transfer Balance Cap (TBC) is set to reduce the amount of money we can shift into draw down phase as you retire or transition to retirement. Previously, investors could move their entire super balance from accumulation phase (super) to draw down phase (allocated pension). Assuming you are fully retired, the income and draw down after 60 years of age is completely tax-free. However, the amount you can transfer from super to an allocated pension is now limited to A$1.6m. (And special rules apply to defined benefit pensions). This A$1.6m transfer balance cap will be indexed periodically in line with the Consumer Price Index (CPI), at increments of A$100,000. If, however, the indexation results in you exceeding the cap, you won’t be entitled to indexation.
From 1 July 2017, the excess transfer balance tax is 15% for any excess periods that start in the 2017–18 financial year. From 1 July 2018, the excess transfer balance tax is 15% for a first year breach and then 30% for subsequent breaches. Taking care not to inadvertently exceed the TBC will ensure you avoid a nasty surprises in your tax return.
Total Superannuation Balance
Similar to the TBC, legislation has been passed to ensure investors are not able to make any further non-concessional contributions to super should their balance be more than A$1.6m for the 2017/2018 financial year. The cap for these individuals will reduce from A$100k to nil (based on current caps).
For those of us looking to make personal contributions into super (and rollover a qualifying pension, for example), be mindful that this doesn’t tip you over the Total Super Balance.
So, should I be contributing to super while living in Singapore?
It’s clear that placing funds into super and yielding all the tax benefits of yesteryears is becoming more restrictivechallenging. Still, super can be a tax-effective vehicle for you in the longer term. It can be a balancing act, with some of the key considerations including (though not limited to) your time horizon for your tenure in Singapore, your eventual retirement and any other investment strategies available to you. It’s important to also understand some of the risks around conditions of release and ongoing legislative changes.
When it comes to super, making mistakes can cost you time and money. It goes without saying that seeking the right advice is important to avoid some of the pitfalls retirement planning can present.
What about Australian property ownership for non-residents?
From 1 January 2018, some depreciation/deductible items have been restricted. A common deduction claimed by expats has been flights to Australia to inspect the premises. This will no longer be available as a deductible expense.
The biggest change, however, is for those who are renting out their previous principal residence (PPR). For many Australians who make the move to Singapore, it’s not uncommon to leave the ‘home’ behind and use it to generate an income whilst they are away. Under this scenario, the property will be exempt from CGT (assuming you are not claiming this exemption on any other property) for a period of 6 years.
But for those who buy a property and use it as their principal residence before subsequently moving offshore after 9 May 2017, the property will no longer benefit from this 6-year exemption.
There are some grandfathering provisions for those who already owned a ‘main residence’ prior to 7:30pm at 9 May 2017 and live offshore. Under this scenario, the CGT exemption will continue to apply, but only up to 30 June 2019.
If you choose to sell your former home after 2019 whilst based in Singapore as a non-tax resident of Australia, you may just find the entire difference between purchase and sell price to be taxable. This could be quite considerable and warrants some planning before 2019.
When you sell an Australian property as a non-tax resident, there is a foreign resident capital gains withholding tax (FRCGW) of 12.5% on a threshold of A$750,000. This is an increase from 10% on a threshold of A$2m.
Should you sell a property while non-resident, you must lodge a tax return at the end of the (Australian) financial year, declaring your Australian assessable income, including any capital gain from the disposal of the asset. At this point, you can claim credit for any withholding amount paid to the Australia Tax Office.
Selling a property has become a lot more expensive for non-residents, this legislation has been put in place to ensure foreign residents are indeed paying their tax liabilities.
Start a conversation with us
While this article addresses some of the Australian-centric strategies available to you, it’s not an exhaustive list. To get the best out of your investments, it’s best to speak to an expert adviser on Australia who will be able to offer professional advice and help you achieve your financial goals—whatever they may be. Get in touch with us today!