There wasn’t a great deal of joy for expatriate Australians
in the 2012/2013 Australian Federal Budget handed down on May 8th.
This budget has variously been called the “Battler’s Budget”
and the “Robin Hood Budget” with the obvious implications of pinching a bit from
the rich and giving a bit to the poor. It’s a little more complex than that as,
drilling down into the details we find that the government has also taken a
pot-shot at a very soft target - expatriates. Some of the measures leveled at
non-resident Australians include the scrapping of the 50% capital gains tax
discount, increasing the non-resident marginal tax rate and introducing measures
that will potentially reduce the amount of Aged Pension received by expat
retirees. These and other measures proposed are all part of the “surplus we had
to have” - Treasurer Wayne Swan’s promise to deliver a budget surplus seemingly
at any cost.
Even as governments in other parts of the globe are beginning
to doubt the benefits of austerity programs, Australia has decided to go down
this route even when not economically necessary. Rather, once promised, it
became politically inevitable. This was one promise that had to be kept by the
Labour government in order to avoid political crucifixion in parliament.
The government has shrewdly targeted non-residents for some
special treatment as we represent a politically soft target. The average Aussie
on the street back in Sydney or Melbourne or Perth is unlikely to be too
concerned that “non-residents” have had their tax burden increased or their
pension entitlements reduced.
Some of the
proposed measures include:
The tax rate for non-residents for income ranging from 0 -
$80,000 will be increased to 32.5% from July 1st 2012 and to 33% from July 1st
2015. This will affect those expats that derive part or all of their income from
taxable sources in Australia. This includes such items as rent from investment
properties, wages and salaries paid in Australia and the taxable portion of
superannuation pensions. There are measures that may be taken in order to
potentially offset Australian income tax for expats, including concessional (tax
deductible) contributions to superannuation.
In what is likely to be a highly unpopular move amongst
expats, the 50% capital gains tax (CGT) discount has been scrapped for
non-residents from 8th May 2012. Gains made on certain assets, such as
investment properties, from that date onwards will not be eligible for the
discount. According to the proposal, non-residents will still be eligible for
the discount on gains made prior to May 8 provided they have a valuation on
their asset as at that date. This may dampen the enthusiasm for non-residents to
invest in direct Australian property, although this mightn’t be such a bad thing
considering we still feel Australian property to be overpriced and relatively
unaffordable by most measures.
There was some bad news for Aussie expat retirees in receipt
of the Aged Pension with a proposal to increase the Australian Working Life
Residence (AWLR) test from 25 years to 35 years. Essentially, the AWLR is a
measure of how many years a pension recipient resided in Australia between the
age of 16 and Aged Pension age (65 for a male). Currently, if you had lived in
Australia for 25 years between age 16 and 65 you would be eligible for the full
pension (subject to means testing). The proposed increase to 35 years means that
for those expats who left Australia permanently prior to age 51 (16 + 35), they
will not be eligible for the full Aged Pension.
Some of the other items of interest in the Budget include the
reduction in the concessional (tax deductible) superannuation contribution cap
for those aged over 50. Previously it was $50,000 but will be reduced to $25,000
as from 1 July 2012. This may impact upon those contributing to superannuation
to offset other Australian income tax or those that are currently using a
“transition to retirement” superannuation pension strategy.
In one of the only bright spots in the budget, the tax-free
threshold on resident personal income tax has been tripled to $18,200 - although
obviously there is little cheer in this for expats who are not expecting to
return to Australia any time soon.
In a nutshell, the Australian government has made things just
that little bit more difficult for expats that hold certain investments in
Australia or derive their income from back home. This is compounded somewhat by
what we see as increasing downward pressure on the Aussie dollar. Always
something of a “canary in the coalmine” for global economic conditions, we feel
the Aussie is substantially overvalued and expect a reasonably sharp decline in
value against the USD as global economic conditions worsen. Thailand-based
expatriates here for the long haul would do well to consider holding at least
part of their investment portfolios in baht in order to hedge against currency
risk.
Lastly, for the cigarette smokers out there - the government
hasn’t forgotten to pick on you either with a reduction in the inbound duty free
allowance from 250 cigarettes to 50 cigarettes from 1 September 2012. That’s
only two packets of Winfield Blue that you’re allowed to take into the country
without penalty. It would be nice to believe that this measure is being
introduced to promote the benefits of a healthy lifestyle, but no, the
government estimates that this measure will provide savings of $600 million over
4 years in additional duties!
Nick Morton is Senior Private Client Advisor at MBMG Group and a Certified
Financial Planner member of the Financial Planning Association of Australia.
Nick can be contacted at [email protected]
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officers can accept any liability for any errors or omissions in the
above article nor bear any responsibility for any losses achieved as a
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