Before you retire overseas, make sure you do your research
A growing number of people are retiring outside of Australia, with some Asian countries being popular choices. For some, it’s because the cost of living is much lower there. Others are moving back to where they lived during an earlier phase of life.
Moving to a new location, wherever it is, should only be undertaken after a lot of thought and research. Moving overseas makes the research part even more imperative—even if you have family and friends living in the desired location, which many don’t.
Several issues arise when you permanently leave Australia to retire in another country. You’ll need to understand and address the implications of moving—especially taxation as it applies when leaving Australia, and taxation in your new country.
If you’re thinking about retiring overseas, you should also have a ‘Plan B’ in case it doesn’t work out. Countries and communities change. The political environment may worsen, or unexpected events can change the dynamics of the country. And be aware that it may not be possible for you to buy back into Australia if real estate prices here have risen much faster than where you are living overseas.
Income Tax and Capital Gains Tax regulations in Australia provide concessions for ‘resident taxpayers’. These include a lower income tax rate and a 50 per cent Capital Gains Tax reduction when a taxable asset or investment is sold or transferred.
One of the big considerations is whether you can, or should, consider retaining your residence in Australia.
As soon as Australian residents declare they’re leaving Australia permanently, they become, for tax purposes, a non-resident from the day they leave the country. That impacts on two classes of assets defined under the Capital Gains Tax regime in Australia.
First, taxable Australian property is real property in Australia. In this case, the issue of taxation doesn’t arise until sale or disposal.
For other assets, such as shares and managed funds, the Capital Gains Tax treats leaving Australia as a deemed disposal, which immediately triggers Capital Gains Tax. To counter this there are ways in which you can elect to have shares and managed funds treated as real property, but you’ll need to get sound advice from a tax professional on this. In some cases, it may be wise to sell your shares and managed funds while you are still a resident to receive the 50 per cent Capital Gains Tax exemption.
A lot of countries have ‘double tax agreements’ with Australia. These agreements set out which country has the taxation rights over a particular type of income (royalties, for instance).
Using Thailand as an example, if you’re a non-resident of Australia and receive an Australian Age Pension, their double tax treaty exempts the Age Pension from tax in Thailand and effectively asks Australia to levy tax (if applicable). Double tax agreements also provide tax credits for tax paid overseas as a way of ensuring that tax is not levied twice on the same income.
Retirees moving overseas should seek advice on how taxation applies in their country of choice. While there’s a mountain of information on the Internet, putting the data into context is not as easy as it appears.
The major considerations here relate to the portability of the Australian Age Pension and whether the retiree may qualify for a form of the Age Pension in their new country of choice. The good news is that, in most cases, if you already receive an Australian Age Pension, there is unlimited portability for those who worked all of their lives in Australia. There will, however, be changes to entitlements or supplementary benefits and associated concessions such as rate reductions.
One often-overlooked issue is the impact of currency movements over the years. This can cause the pension to rise or fall depending on the strength or weakness of the Australian dollar relative to the local currency.
For those who have not worked all their lives in Australia, Proportional Portability rules apply. Details on these rules can be obtained from Centrelink or a professional adviser.
Health Insurance and Medical Facilities
This topic requires a lot of research and is too complex to be adequately covered here. Some medical expenses are excessive overseas (in the USA, for instance) and some countries such as Thailand require you to have at least $30,000 in the bank to cover any health-related expenses (or alternatively, you need to be earning a monthly income of $2500).
Good luck with your research. The information included in this article was accurate at the time of writing. We live in an era of unprecedented regulation, and things can change, so beware.
Purchasing real estate in Asian countries
Many countries prohibit the purchase of real estate and some countries have complex land ownership regulations as well as different legal systems. In Thailand, foreigners are prohibited from legally acquiring freehold land and can only acquire a 49 per cent interest in a condominium. In Vietnam, a communist country, all the land is owned by the people and managed by the State. However, foreigners can buy a residential property and lease the land on which the dwelling sits. In Laos, foreigners are also unable to buy land and are limited to leases that, typically, last for 30 years. Again, things can change, so make sure you do your homework.
Owen Weeks is director and authorised representative of Lifestyle Matters Pty Ltd and a Registered Tax Agent. He is a Fellow of the Financial Planning Association, a Fellow of the Institute of Professional Accountants, and an Honorary Fellow of the Association of Superannuation Funds of Australia. He is also the co-author of Retire Bizzi and Where to Retire in Australia.
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