Living/Working Overseas (In Singapore?) while investing in Australia.

[alexlee]

Dear Alex and Julia,

1. What is the exact nature on the existing double taxation agreement between the Singapore and Australian Govt?

2. How does it apply to Australians working or/and investing in Singaporeans and for Singapore working or/and investing in Australia?

My knowledge is limited to Australian tax residents working as a salaried employee with a country that has a double tax agreement. My understanding is that for this person, e.g. Singapore salary income is NOT further taxed in Australia if all applicable Singapore tax has been paid. So where the Australian tax rate is higher than the Singapore rate, the taxpayer would only have to pay the lower Singapore rate, and that's it. (e.g. Japan has tax rates <20%, so I only paid that while working in Japan: I disclosed my Japanese income on my Australian return but was not taxed further on it).

This rule applies if, amongst other things, the person works in said country for at least 90 days.

I have no idea how it applies to Australian tax residents investing in Singapore. I suspect it doesn't. The employment rule is limited only to salary jobs (as opposed to, say, using a limited company to contract through). For an Australian tax resident there is no special exemption that I know of for foreign-sourced dividends, rent or interest. You will probably (not sure) get a tax credit for Singaporean taxes paid, but if the Oz rate is higher than the Singaporean rate, you pay the extra.

This is why the general strategy I outlined for working overseas assumes you don't invest overseas. I personally did not buy any UK or Japanese shares or property while overseas. I only bought Australian property and shares. It is especially effective if you have a net tax loss in Oz.

I have no idea how it applies to Singaporeans investing or working in Australia in any capacity, since I know nothing about Singaporean tax law.
Alex

 

[alexlee]

in my five years i met a couple of people that utilised ultra low interest rates, using australian banks in singapore, to buy property in australia and pay of the mortgage with S$ income. if you are interested to learn more pm me and i can give some more insight knowledge.
have fun in singapore
d.

Though be aware of forex risk, since the whole of the balance of the loan is exposed. If the Australian dollar weakens against the Sing dollar (so the Australian dollar equivalent of your loan increases), you're in trouble. Unless you make so much in Sing dollars that you can pay off the loan in that period, of course.
Alex

 

[ermen]

tax free

as a tax resident though u r able to claim the tax free threshold. so maybe that is a disincentive for ATO not wanting to claim residency?

 

[alexlee]

as a tax resident though u r able to claim the tax free threshold. so maybe that is a disincentive for ATO not wanting to claim residency?

But as a tax resident the ATO can tax you on WORLD wide income (e.g. income sourced from investments in overseas property). They can't do that if you're a tax non-resident.

Think about the balance. Is the ATO going to gain more by forcing people like me into being tax non-resident (negatively geared property investor working overseas) or rope in more people into being tax residents and tax them on their world wide holdings? I'm a statistical anomaly that the ATO doesn't care about.
Alex

 

[auspony]

You know, if you have Australian assets (your IPs) you're legally obliged to do Australian returns. May want to talk to your accountant. Just because you're not a tax resident doesn't mean you don't have to do returns: you do if you have Australia-based stuff.
Alex

Hmmmmm didn't know that thanks. I think it's ok since none of them are tax positive - so eventually I will file returns for losses and carry them forward?

 

[alexlee]

Hmmmmm didn't know that thanks. I think it's ok since none of them are tax positive - so eventually I will file returns for losses and carry them forward?

The losses can be carried forward, but obviously you have to lodge each year's tax return for the losses to be legit in the ATO's eyes. I don't know whether you can just lodge them in bulk in the future, though I suppose you wouldn't have any late lodgement penalties.........

In any case, do you really want to have to sort through years of tax returns in one hit? Probably easier to do it every year.
Alex

 

[auspony]

The losses can be carried forward, but obviously you have to lodge each year's tax return for the losses to be legit in the ATO's eyes. I don't know whether you can just lodge them in bulk in the future, though I suppose you wouldn't have any late lodgement penalties.........

In any case, do you really want to have to sort through years of tax returns in one hit? Probably easier to do it every year.
Alex

Well the horse has well and truly bolted. Maybe I can lodge tax returns for 2000-2006 as late annual returns now, but I will be moving back to Australia in 2008, from when I will be lodging tax returns as an Australian resident again.

 

[MF35]

Alexlee,

Just to confirm I understand the Forex risk correctly. Is it the case that the risk is that the AUD could drop against the SGD when we had to return home? Otherwise it would just be a fluctuation that didn't affect us in real terms as long as we weren't cashing SGDs in for AUDs at that time?

If this did happen than transferring a loan amount back to AUDs would increased the borrowed amount and we'd lose out. Is this correct?

Thanks,

MF35

 

[ermen]

Well the horse has well and truly bolted. Maybe I can lodge tax returns for 2000-2006 as late annual returns now, but I will be moving back to Australia in 2008, from when I will be lodging tax returns as an Australian resident again.

yeah you can do that. they won't penalise you if you lodge late and don't owe them money. i did my past 2 years returns this year and got a nice franking credit back for each year...

 

[alexlee]

Alexlee,

Just to confirm I understand the Forex risk correctly. Is it the case that the risk is that the AUD could drop against the SGD when we had to return home? Otherwise it would just be a fluctuation that didn't affect us in real terms as long as we weren't cashing SGDs in for AUDs at that time?

If this did happen than transferring a loan amount back to AUDs would increased the borrowed amount and we'd lose out. Is this correct?

This is just based on my research on this when I was in Japan. The bank said that when I left Japan I would have to refinance.

Well, the FX risk is on both interest AND principal, I suppose. While you are paying interest in SGD, your rent is still in AUD. So a higher SGD in effect means a higher interest rate.

Yes, as long as the loan is still in SGD the FX risk is only 'unrealised'. It only becomes realised when you turn the loan amount back to AUD. It can work for you as well, of course, but you'd basically be taking a punt on currencies for hundreds of thousands of dollars.

Think about this, though. Say you save 3% a year on interest rates for 4 years, so you save 12% compared to if you'd left the loan in AUD. The SGDAUD exchange rate has ranged from 0.7468 to 0.8762 over the last 4 years. That's 17% (your potential loss / gain). The AUDJPY rate has ranged from 74.58 to 107.67. That's 44% (your potential loss/gain).

So if you had, say, taken out a $200k AUD loan in SGD at 0.7468, you would be SGD 267,809. If you then convert it back at 0.8762, if would be AUD$234,655. So your loan balance would INCREASE by 34,655 in 4 years from the FX move.

I didn't have the guts to do it when I was in Japan, even though I would, in fact, have made a lot of money from it.
Alex

 

[MF35]

Alexlee, so in theory it would be more risky if when you borrowed in SGD the AUD was in a comparatively strong position against the SGD (logic being this would increase the risk of a correction where the AUD dropped in value comparatively which would hurt the borrower if they had to transfer the loan back to OZ). If this logic is sound then it would be better to borrow when the opposite was the case. When the AUD was weaker, or undervalued so to speak, against the SGD (providing more opportunity for a correction in the direction that would actually reduce the loan when transferred back to AUD).

Otherwise the only fall back option I can see is to pay the loan out with SGD (savings if you have them), or remain earning Singapore Dollars until such a time as the FX situation improved in your favor to at least a neutral result on the exchange back AUD. Unless others have ideas on how to reduce the FX risk?

Duplex, I sent you a PM. Interested to hear what you know about this topic. I'm not a Private Banker. I'm currently a Detective in the NSW Police. I'm resigned to the fact I'll never get out of Sydney to anywhere I'd want to go while in the Police so I'm considering job options in the private sector. The job in Singapore would be as an investigator for a major bank in relation to fraud/theft. It's only a possibility for me at this stage (I was asked to apply when the jobs come up) but if we were going to be better off financially we'd love the chance to live O/S for a few years before the kids get to old (like them to do most of their schooling in the one spot).

Thanks, MF35

 

[alexlee]

Alexlee, so in theory it would be more risky if when you borrowed in SGD the AUD was in a comparatively strong position against the SGD (logic being this would increase the risk of a correction where the AUD dropped in value comparatively which would hurt the borrower if they had to transfer the loan back to OZ). If this logic is sound then it would be better to borrow when the opposite was the case. When the AUD was weaker, or undervalued so to speak, against the SGD (providing more opportunity for a correction in the direction that would actually reduce the loan when transferred back to AUD).

Otherwise the only fall back option I can see is to pay the loan out with SGD (savings if you have them), or remain earning Singapore Dollars until such a time as the FX situation improved in your favor to at least a neutral result on the exchange back AUD. Unless others have ideas on how to reduce the FX risk?

Your logic is sound, but you're talking about being able to determine whether a currency is overvalued or not. If I knew how to read currencies like that I'd be running a hedge fund and making a billion dollars. Put it this way, if someone said to you 'are you willing to put on an FX trade for a couple hundred thousand dollars', would you do it? Because that's exactly what you're doing by borrowing in one currency to buy assets in another. Don't think just because it's backed by property that it's less risky.

For example, back in 2001 or so, the AUD was at 50 US cents and around 50 yen. In hindsight, it was very undervalued given that the commodities boom would kick the AUD up to 90c US and 100+ yen. But who knew? China was still reeling from the Asian crisis.

Personally, I wasn't willing to take the FX risk. I kept my loans in Australian dollars while I was overseas.
Alex

 

[Peter_Tersteeg]

Whilst living overseas, lenders do treat you a little differently.

They're still happy to lend money based on your net income, but depending on the lender there may be restrictions.

* As a general rule, you'll need a 20% to 30% deposit, as mortgage insurers won't want to be involved in these types of deals. There are some exceptions and it may be possible to go to 95% LVR, but it narrows your options substantially.

* Some lenders will only take a percentage of your income, or they may increase your debt for assessment purposes. This can make a big dent in your borrowing capacity.

* Things take longer to get done. Mail turnaround times can really kill you if you've got a deadline. Don't even dream of a 30 day settlement. 60 days is achievable if everything goes smoothly, but don't expect it to be that easy. I like to budget at least 90 days for settlements.

There are a lot of potential issues with purchasing from overseas, but it can be done. There are a lot of potential pitfalls, but with time and persistance these can be dealt with.

 

[MF35]

Thanks for the input everyone, I'll keep looking into the general viability of the move to Singapore. If it looks like it will be profitable, and I get offered the job, I'll make a decision on the plan of attack for continued investing in IPs. I'd probably just borrow in AUDs unless I was borrowing an amount I was prepared to pay off in SGDs before coming home.

It seems to me there would also be some FX risk though if we were earning SGDs and making repayments on AUD loans. IE - if the SGD dropped in value against the AUD we'd be paying more SGDs to meet our repayments. And if we got paid in AUDs the same risk would apply in reverse to money exchanged to SGDs for living expenses. A much lower risk than with the balance of a large loan of course, and the ups and downs on a short term basis like this may even out over time, but still a potential loss of some degree. Earning a fair bit more / being better off financially in Singapore (if it turns out this would be the case) would make this smaller risk less of a concern though.

Of course if the IP portfolio paid for itself there would be no issue. That's unlikely to be the case for us though.

MF35

 

[chrisso]

Singapore benefits

Having taken many others advice here and never posted I thought it was time to pay something back. I have just moved to Tokyo after 4 years in Singapore and over 15 years working overseas. I have declared myself as a Non Resident for Tax, but have still lodged a return every year, through an accountant. I don't declare any overseas income and simply cross out the words "out of Australia" (or similar) in the declaration. I have notified my bank as well so any interest paid has the required witholding tax deducted.
I still claim all the costs for my IP (from 02) and although there is no annual refund (as I have not paid any Australian tax) the losses are carrying forward until I return.
I looked at foreign currency loans as the interest rates available are very low. The risk I didn't want, apart from repayments was the bank asking me to tale my LVR back to 80% due to a drop in the AUD meaning my asset value had decreased when compared to the Singapore dollar loan.
If you do move, also pay to get some good initial advice as you can set up your PPOR as an IP but without the CGT implications as you will not be having another PPOR in Singapore.
One word of caution though is that many of the expatriates working in Singapore have their rent and children's school fees paid by the company, so this is where their disposable income is dramatically increased. If you will not get this, the only advantage will be the lower tax rates.
Hope this helps and I'd be happy to give you any other insights on Singapore if you want.

 

[alexlee]

Having taken many others advice here and never posted I thought it was time to pay something back. I have just moved to Tokyo after 4 years in Singapore and over 15 years working overseas. I have declared myself as a Non Resident for Tax, but have still lodged a return every year, through an accountant. I don't declare any overseas income and simply cross out the words "out of Australia" (or similar) in the declaration. I have notified my bank as well so any interest paid has the required witholding tax deducted.

Yes, if you have any Australia-sourced income you will have to do an Australian tax return, regardless of whether you have tax to pay or not. I'm assuming you mean withholding tax deducted for interest RECEIVED by you?

If you do move, also pay to get some good initial advice as you can set up your PPOR as an IP but without the CGT implications as you will not be having another PPOR in Singapore.

I'm assuming you're referring to the 6 year rule (move out of PPOR, not have another PPOR, and PPOR keeps CGT free status for 6 years even if you rent it out). Is there a declaration you have to fill in for this? Though it would make sense to do a depreciation schedule and valuation by a registered valuer when you move to Singapore.
Alex

 

[Chef Don]

After returning from working in Thailand and The Philippines, i also had to declare my income to the Australian Tax Office and was duly ordered to pay a few thousand extra in tax from investments etc.
Make sure when you leave you have proof that the income has had tax paid and receipts for it.
You really step up so much higher than you think for being an Expat.

 

[MF35]

Hi Chef Don,

What exactly do you mean by "You really step up so much higher than you think for being an Expat." ?

MF35

 

[sydprop]

Another question

Great thread. I see the benefit of staying resident for shares/franking credits etc.

But assuming I have a few investment properties negatively geared, does staying a resident mean that I don't have to wait until I return to claim the rolled forward losses?

e.g. I am trying to understand if there is a cashflow benefit in staying Resident.

Hope that is clear!

 

[NSW]

One of the best books you can buy as an expat is "The Aussie Expat - The Luckiest Person on Earth" written by Steve Douglas. It answered many of our questions.

This is the website www.smats.net