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It should be no surprise that taxation in Australia is high. As the world’s largest island, it’s twice the size of India with less than 2% of its population. Six states, two territories (each with their own governments) and a first class public health system all need to be funded.
Australia sustains its vast infrastructure and services through income tax on a relatively small working population of 64% of its 27 million inhabitants, alongside taxes on worldwide income, capital gains on Australian taxable real property (no matter where the owner resides), and other indirect taxes.
Living in Singapore, we have seen prices rise over recent years, but if you’ve dined in Sydney recently, you will appreciate that the increased cost of living is not confined to the little red dot.
Naturally, when consumption spending increases, the ability to save money diminishes. Under Paul Keating, the government implemented measures to counteract this by making superannuation mandatory – shifting the savings burden from the government to the taxpayer. This compulsory, tax-advantaged savings scheme is designed to ensure that come retirement, working Australians have a nest egg.
The challenge for many who have moved overseas is that the superannuation guarantee is no longer deducted at source from incomes. Consequently, we (should) have additional monthly disposable income (increased by the reduced level of tax), potentially leading to a future savings gap if we don’t put it to good use.
Accumulated wealth
They say every challenge provides an opportunity, and this is the case here. Whilst superannuation is a valuable savings mechanism, it does have access restrictions and is not available until retirement (ages 55 – 60, depending on your date of birth), or when you reach age 65, even if you are still working.
In building any financial plan for clients, alongside determining how wealth is to be built and protected, it is equally important to reach clarity on what accumulated wealth is to be used for and when it is needed. If, for example, funding is needed for university fees and retirement is some way off, superannuation will not be an appropriate solution (even if we could add to it).
“Every challenge provides an opportunity, and this is the case here”
Fortunately, a viable and tax-effective solution does exist for Australians living overseas in the form of an “offshore life assurance bond”. Capital growth within the structure is sheltered in Singapore (and even after returning to Australia), until such time that money is withdrawn. If this weren’t good enough, if the money is withdrawn more than 10 years after the establishment of the structure and the investor is an Australian tax resident at the time, there is NO tax on any amounts withdrawn. This 10-year period holds provided that in any one year, the total investment made does not exceed 125% of the prior year, as exceeding this will trigger a reset of the 10-year start date.
Not only can the structure be an important source of capital before retirement, but it can be held as an important asset for tax-free passive income to complement superannuation/investment property income, etc.
Clients often ask why every expat Australian does not utilise this opportunity. I wish I knew.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances. You are advised to seek independent tax advice from suitably qualified professionals before making any decision as to the tax implications of any investment.
Given that every individual situation and circumstances differs. Please contact us to discuss your specific circumstances on
steve.settle@sjpp.asia or +65 9776 0969
The ‘St. James’s Place Partnership and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives. Members of the St. James’s Place Partnership in Singapore represent St. James’s Place (Singapore) Private Limited, which is part of the St. James’s Place Wealth Management Group, and it is regulated by the Monetary Authority of Singapore and is a member of the Investment Management Association of Singapore and Association of Financial Advisers (Singapore). Company Registration No. 200406398R. Capital Markets Services Licence No. CMS100851. St. James’s Place Wealth Management Group Ltd Registered Office: St. James’s Place House, 1 Tetbury Road, Cirencester, Gloucestershire, GL7 1FP, United Kingdom.Registered in England Number 02627518.
