A Guide for Australian Expats Early in Their Journey Abroad

Embarking on an international career is a life-changing decision, offering exciting opportunities and the potential to build significant wealth. However, the financial landscape you may find yourself in is complex, and what you do during these years abroad has the potential to set the foundation for your financial future when you eventually return to Australia.

It’s important to not only enjoy the benefits today, but also to strategically plan for tomorrow. At Skybound Wealth Management, we’re here to guide you every step of the way, ensuring that your wealth is optimised and protected for when the time comes to repatriate.

Key Considerations for Managing Wealth Abroad

While returning to Australia may seem a distant consideration, planning ahead is essential. As an Australian expat, the financial decisions you make now can have a profound impact on your future tax liabilities and overall financial wellbeing. Let’s explore some critical aspects that should be on your radar:

1. Capital Gains Tax (CGT) on Overseas Assets

As an Australian expat, you have a unique opportunity to build and grow assets in a tax-efficient environment. However, it’s important to keep an eye on how these assets will be treated when you eventually return home.

Deemed Disposal: While living abroad, you may sell assets without incurring Australian CGT. However, upon regaining residency, the Australian Taxation Office (ATO) will treat any remaining assets as if they were acquired at their current market value—this is known as "deemed acquisition."

Future CGT Liability: The appreciation of these assets after you return will be subject to CGT in Australia. By planning now, you can structure your investments to minimise this liability when the time comes to sell.

Example: If you’ve purchased shares in a European company, their value might grow significantly by the time you decide to return to Australia. The ATO will consider them as though they were bought at their market value on your return date, meaning any further growth will be subject to CGT.

2. Income Tax on Foreign Income

Living abroad often means benefiting from lower taxes, but it’s vital to consider how your income will be taxed when you return to Australia.

Tax-Free Threshold Loss: Upon your return, income generated from your foreign investments will be added to your taxable income in Australia. This could push you into a higher tax bracket, reducing your tax-free threshold and increasing your overall tax burden.

Double Taxation: Although Australia has agreements to avoid double taxation, the complexity of these treaties can result in liabilities in both jurisdictions. Early planning can help you navigate these challenges effectively.

3. Foreign Exchange Risks

When living abroad, it's easy to become heavily exposed to the currency of your host country, especially if you're earning in major currencies like USD or EUR. However, this exposure carries significant risk. Currency fluctuations can have a profound impact on your wealth, and being overly concentrated in one currency can make you vulnerable to sudden market shifts.

Diversifying Currency Exposure: It's essential to diversify your currency exposure to mitigate risks. Instead of holding all your assets in one currency, consider spreading your investments across multiple currencies. This can help cushion the impact of adverse currency movements and reduce the risk of losing wealth due to unfavourable exchange rates.

Opportunities in Currency Markets: While currency risk is a concern, it also presents opportunities. By strategically purchasing other currencies, you can potentially benefit from favourable exchange rates. For instance, if the Australian dollar is expected to weaken against a particular currency, holding assets in that currency could increase their value when converted back to AUD. Our team at Skybound Wealth can help you identify and capitalize on these opportunities, ensuring your portfolio remains robust against currency fluctuations.

4. Timing Your Repatriation

While you may not be planning to return to Australia soon, the timing of your repatriation will play a crucial role in determining your tax liabilities.

Staggered Repatriation: Gradually bringing your wealth back to Australia over several years can help spread out the tax impact, potentially keeping you in a lower tax bracket.

Aligning with Life Events: Aligning your repatriation with life events such as retirement could offer additional tax benefits, especially when it comes to superannuation and other retirement-related concessions.

5. Superannuation

A Superannuation is a powerful tool for securing your retirement, offering various tax advantages and benefits. However, as an Australian expat, many of these benefits may not be as advantageous or even accessible, depending on your specific circumstances.

Limitations for Expats: While superannuation contributions can reduce your taxable income in Australia, as an expat, you may find that these benefits are diminished. For instance, your contributions may not be tax-deductible in your host country, or the earnings within your superannuation fund may be subject to foreign taxes, reducing the overall benefit.

Exploring Alternative Strategies: Given these limitations, many expats explore alternative investment strategies that leverage their international status. By investing in global assets or tax-efficient structures available in your host country, you might unlock opportunities that offer better returns or tax advantages compared to superannuation. At Skybound Wealth, we can help you evaluate these alternatives, ensuring that your retirement planning is optimised for your unique situation as an expat.

Strategies to Optimise Your Wealth Abroad

As you progress through your expat journey, there are several strategies you can implement now to optimise your wealth and minimise future tax liabilities:

Tax-Effective Investments

Consider restructuring your portfolio to include tax-effective investments, such as Australian shares with franked dividends. These dividends come with franking credits that can offset the tax you owe, making them a highly efficient option.

Utilise Tax Deferral Strategies

Where possible, defer realising capital gains or receiving income until your return to Australia, where you can benefit from potentially lower tax rates. This approach requires careful planning, and Skybound Wealth is here to guide you through the process.

Double Taxation Relief

We’ll help you navigate the complexities of double taxation agreements between Australia and your host country, ensuring you claim all the credits available to reduce your overall tax burden.

Foreign Exchange Hedging

Implementing a foreign exchange hedging strategy is essential to protect the value of your overseas assets. We can advise on various financial instruments, such as forward contracts or options, to lock in favourable exchange rates and provide greater certainty when repatriating your wealth.

Why Skybound Wealth Is Integral to Your Financial Journey

The financial journey of an expat is filled with opportunities but also with potential pitfalls. At Skybound Wealth, we’re more than just advisers—we’re your partners in securing a prosperous future. Our deep understanding of the challenges you face allows us to provide tailored strategies that protect your wealth and ensure you’re well-prepared for whatever the future holds.

Let’s Build Your Future Together

Are you ready to take control of your financial future? Even if returning to Australia is a long way off, the steps you take today will determine the strength of your financial position when that time comes. Book a call with one of our expert advisers today, and let Skybound Wealth help you navigate the complexities of your expat journey with confidence and clarity.